Strong U.S. job growth, rising wages boost Dec rate hike prospects

EghtesadOnline: U.S. employers maintained a strong pace of hiring in October and boosted wages for workers, which could effectively seal the case for a December interest rate increase from the Federal Reserve.

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05 November 2016

Nonfarm payrolls increased by 161,000 jobs last month amid gains in construction, healthcare and professional and business services, the Labor Department said on Friday. The closely watched employment report was published four days before the Nov. 8 presidential election.

The solid labor market fundamentals were also underscored by revisions to August and September data, which showed 44,000 more jobs created than previously reported. Average hourly earnings rose 10 cents or 0.4 percent in October, reports Reuters.

As a result, the year-on-year gain in wages last month rose to 2.8 percent, the largest in nearly 7-1/2 years.

"This was a very good report. With the hourly wage number beginning to accelerate, the Fed will have all the cover it needs to raise rates in December," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The report came on the heels of data last week showing an acceleration in economic growth in the third quarter. Businesses have created 15.5 million jobs since 2010, with almost half of them high wage jobs. Even Americans holding low-income jobs are starting to experience wage gains.

Economists said that could provide a lift to Democratic candidate Hillary Clinton against her Republican rival Donald Trump as the race for the White House tightens and becomes increasingly bitter and divisive.

Speaking in Pittsburgh on Friday Clinton hailed the 73 straight months of job gains and took a swipe at Trump's tax proposal, which she said would to give the biggest tax breaks in history to wealthy Americans.

"I believe in growth from the middle out and bottom up. When the middle class thrives, America thrives," said Clinton. "Donald Trump believes in something different. He wants an economy that works for him."

Trump dismissed the low unemployment rate and other economic data as "phony."

"These numbers are absolute disaster. Nobody believes the numbers anyway. The numbers they put out are phony," Trump told supporters in Atkinson, New Hampshire.

Though the U.S. central bank is expected to increase borrowing costs at the Dec. 13-14 policy meeting, that decision will likely depend on the outcome of Tuesday's election.

Financial markets view Clinton as the candidate of the status quo, while many investors fear that a Trump victory would carry risks to global trade and growth.

The dollar was trading almost flat against a basket of currencies, while U.S. Treasuries were higher. U.S. stocks rose, with the S&P 500 index on track to snap its eight-day losing streak.

The unemployment rate fell one-tenth of a percentage point to 4.9 percent last month, in part as people dropped out of the labor force. A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell two-tenths of a percentage point to an 8-1/2 year low of 9.5 percent.

The Fed on Wednesday left interest rates unchanged but said its monetary policy-setting committee "judges that the case for an increase in the federal funds rate has continued to strengthen." It lifted its benchmark overnight interest rate last December for the first time in nearly a decade.

TREND HAS SLOWED

The trend in employment growth has slowed as the labor market nears full employment and the economy's recovery from the 2007-09 recession shows signs of aging.

Employment growth so far this year has averaged 181,000 jobs per month, down from an average gain of 229,000 per month in 2015. Still, the monthly job gains are more than enough to absorb new entrants into the labor market.

Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the work-age population.

October's rise in average hourly earnings added to September's 0.3 percent gain. The year-on-year increase was the biggest advance since June 2009 and followed a 2.7 percent rise in September.

"This is good news for the average worker who's probably seeing a little more in their paychecks, spending a little more freely, or maybe even starting to save a little for retirement," said Scott Anderson, chief economist at Bank of the West in San Francisco.

The Fed on Wednesday struck a fairly upbeat note on inflation, saying price pressures had "increased somewhat since earlier this year."

Still, wage growth remains moderate and economists blame this on a low labor force participation rate.

The participation rate, or the share of working-age Americans who are employed or at least looking for a job, fell 0.1 percentage point to 62.8 percent last month, not too far from multi-decade lows, in part reflecting demographic changes.

The solid payrolls gain accompanied by the surge in wages could support consumer spending heading into the holiday season, and in turn keep the economy on a relatively higher growth path.

While the household survey showed a large increase in the number of people saying they could not get to work because of bad weather, the department said it was difficult to assess the impact of Hurricane Matthew on job growth last month.

The storm lashed the east coast of the country last month, causing extensive flooding. The average workweek held steady at 34.4 hours.

Construction payrolls increased 11,000, rising for a second straight month. But manufacturing employment fell 9,000 last month, falling for a third straight month.

Retail sector employment surprisingly fell 1,100 jobs, despite anecdotal evidence retailers had embarked on early hiring for the holiday season.

Professional and business services payrolls rose 43,000. Healthcare and social assistance employment increased 39,100 last month. Temporary-help jobs, a harbinger for future hiring, increased 6,400. Government employment rose by 19,000 jobs.