By Lucia Mutikani
WASHINGTON (Reuters) - The U.S. economy created the fewest jobs in five months in October and more Americans are working part time, underscoring the challenges the next president faces to keep the recovery from the pandemic on track as fiscal stimulus dries up and new COVID-19 cases explode across the country.
The Labor Department's closely watched employment report on Friday also showed 3.6 million people out of work for more than six months. Democratic presidential candidate Joe Biden took the lead over President Donald Trump in the battleground states of Pennsylvania and Georgia for the first time on Friday, putting him on the verge of winning the White House.
"Initially, the recovery was breathtaking, but has lost much steam," said Sung Won Sohn, an economics professor at Loyola Marymount University in Los Angeles. "With no fiscal stimulus and the resurgence of coronavirus, job gains will be tougher to achieve in the future."
Nonfarm payrolls increased by 638,000 jobs last month after rising by 672,000 in September. That was the smallest gain since the jobs recovery started in May and left employment 10.1 million below its peak in February.
Employment was held back by the departure of 147,000 temporary workers hired for the 2020 Census. A 271,000 increase in leisure and hospitality jobs accounted for about two-fifths of the payrolls gain last month. Employment in professional and business services increased by 208,000, with about half in temporary help services. Manufacturing added 38,000 jobs, while construction payrolls increased 84,000.
The loss of temporary Census jobs and further layoffs at cash-strapped state and local governments cut overall government employment by 268,000 jobs. Economists polled by Reuters had forecast payrolls advancing by 600,000 jobs in October.
Though private payrolls increased 906,000 last month, the labor market recovery has a long way to go.
"Employment is still only at its late 2015 level," said Gus Faucher, chief economist at PNC Financial (NYSE:PNC) in Pittsburgh, Pennsylvania. "And at October's pace, it would take about 16 months for employment to return to its pre-pandemic level."
Graphic: UNEMPLOYMENT - JOBS - FLAT - https://graphics.reuters.com/USA-ECONOMY-UNEMPLOYMENT/0100318Z2TX/usa-economy-unemployment.jpgA contested election reduces the chances of another coronavirus rescue package from the government this year. Even if more fiscal stimulus is agreed on, it will likely be smaller than had been anticipated before the election.
That shifts the spotlight to the Federal Reserve. The U.S. central bank kept interest rates near zero on Thursday. Fed Chair Jerome Powell acknowledged the pace of improvement in the economy and labor market had moderated, noting that the recovery would be stronger with more fiscal support.
"The Federal Reserve is going to end up doing more stimulus rather than scaling it back," said James Knightley, chief international economist at ING in New York. "This is especially so if political tensions remain high and get in the way of a swift fiscal response."
Stocks on Wall Street were trading lower. The dollar slipped against a basket of currencies. U.S. Treasury prices fell.
RISE IN PART-TIME WORKERS
More than $3 trillion in government coronavirus relief for businesses and workers fueled a historic 33.1% annualized rate of economic growth in the third quarter. That followed a record 31.4% pace of contraction in the April-June quarter.
Lack of fiscal stimulus and spiraling new coronavirus infections put the economy on a sharply slower growth path heading into the fourth quarter. Restaurants and gyms have moved outdoors, but cooler weather and the resurgence in COVID-19 infections could leave many in trouble.
Even if state and local governments do not impose new restrictions on businesses, consumers are likely to stay away, fearing exposure to the respiratory illness. The United States set a one-day record for new coronavirus cases on Wednesday with at least 102,591 infections, according to a Reuters tally.
Though small and medium-sized businesses have suffered most from the pandemic, large corporations have not been spared. Exxon Mobil (N:XOM) last month announced 1,900 layoffs in the United States. Boeing (N:BA) said it expected to eliminate about 30,000 jobs, 11,000 more than previously planned, by end-2021.
The unemployment rate fell to 6.9% from 7.9% in September. But it continued to be biased down by people misclassifying themselves as being "employed but absent from work." Without this recurring mistake, the government estimated the jobless rate would have been about 7.2% in October.
The number of people out of work for more than six months surged by 1.2 million in October. There were 6.7 million people working part time for economic reasons, reflecting reduced hours because of slack work or business conditions. That was up 383,000 from September.
The share of permanently unemployed increased to 40.9% in October from 35.6% in the prior month.
"A rising share of temporary layoffs are becoming permanent, signaling the long-lasting scarring effects from the crisis," said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics in New York.