* Nonfarm payrolls increase 204,000 in October
* Unemployment rate rises to 7.3 percent from 7.2 percent
* Average workweek holds steady, hourly earnings up
* No discernible payrolls impact from government shutdown
By Lucia Mutikani
WASHINGTON, Nov 8 (Reuters) - U.S. job growth unexpectedly
accelerated in October as employers shrugged off a partial
government shutdown, suggesting the economy was on firm footing
and raising the prospect the Federal Reserve may soon decide to
temper its bond-buying stimulus.
Employers added 204,000 new jobs to their payrolls last
month, and 60,000 more jobs were created in September and August
than previously reported, the Labor Department said on Friday.
The unemployment rate, however, edged up to 7.3 percent from
September's nearly five-year low as federal workers were idled.
Economists expect a reversal in coming months.
The sturdy gain in payrolls beat economists' forecasts for
only 125,000 new jobs and joined data on the factory and
services sectors in suggesting the economy weathered
Washington's budget standoff far better than initially feared.
"This is an important development that increases the chance
that the economy's momentum may have survived nearly intact,"
said Scott Anderson, chief economist at Bank of the West in San
The report gave U.S. stocks a lift even as investors braced
for the possibility of less Fed stimulus. The Standard & Poor's
500 index ended higher for a fifth straight week.
The dollar neared a two-month high against a basket of
currencies, and U.S. Treasury debt prices fell.
Ahead of the jobs data, most economists said the central
bank would wait until its meeting in March to curtail its
bond-buying program. Some now say it would be unwise to rule out
a move as soon as the Fed's next meeting in December.
"This report is significant enough to increase the
probability of a December taper if November's economic data show
a continuation of this trend," said Doug Handler, chief U.S.
economist at IHS Global Insight in Lexington, Massachusetts.
A Reuters poll of big bond dealers conducted after the jobs
figures were released found that more now expect the central
bank to begin dialing back its bond purchases before March,
compared with a similar survey last month.
STILL SOME CLOUDS OVER ECONOMY
October's job gains pushed them above the 190,000 monthly
average for the past 12 months, a sign of labor market strength.
The economy, however, may not yet be out of the woods.
A separate report showed an unexpected drop in the Thomson
Reuters/University of Michigan's preliminary consumer sentiment
index for November, which came close to a two-year low.
In a third report, the Commerce Department said inflation,
excluding food and energy, rose 1.2 percent in September from a
year ago, well below the Fed's 2 percent target. Economists said
that could make the central bank less inclined to slow its $85
billion per month bond purchase pace anytime soon.
In addition, the fiscal outlook remains uncertain, with a
deal still to be hammered out on government funding and the
nation's debt limit before current arrangements expire early
"Until we get past the next fiscal deadline, I would say
it's too early for the Fed to consider anything," said John
Silvia, chief economist at Wells Fargo Securities in Charlotte,
The employment report also showed a surprisingly large
number of Americans dropped out the labor force, pushing the
participation rate to a 35-1/2-year low of 62.8 percent.
The 0.4 percentage point drop in the participation rate, was
the largest since December 2009.
The department said there had been no "discernible" impact
on its payroll figures from the 16-day government shutdown,
adding that it had received an above-average response rate in
its survey of employers.
The survey of households from which the unemployment rate is
derived, however, was affected.
Furloughed federal workers were considered as employed in
the payroll figures because they received back pay, but as
unemployed in the household survey. That helped fuel an
unusually large decline in the household survey's measure of
employment, and it pushed the jobless rate higher.
Drew Matus, an economist at UBS in New York, said that
without the distortions from the 16-day shutdown, the jobless
rate would have dropped to 7.0 percent in October and the labor
force participation rate would have held close to 63.2 percent.
The better-than expected payrolls count is unlikely to
change expectations of slower economic growth in the fourth
quarter, given that consumer spending slackened and business
inventories rose in the July-September period.
The private sector accounted for all the job gains last
month, with increases across all industries. Government payrolls
The leisure and hospitality industry added 53,000 new jobs,
the most since April, while professional and business services
added 44,000 new positions. Payrolls in the retail sector
increased 44,400 last month.
Manufacturing employment rose 19,000, the most since
February. There were also gains in construction, where payrolls
The average work week held steady at 34.4 hours. Hourly
earnings gained two cents and have risen 2.2 percent over the
past 12 months.