US hir­ing surge raises the specter of Fed rate hike

Un­em­ploy­ment drops from 5.1% to 5% in Septem­ber

Kuwait Times - - BUSINESS -

WASH­ING­TON: US hir­ing swelled in Oc­to­ber by the largest amount all year, and un­em­ploy­ment dropped an­other notch to 5 per­cent, in­creas­ing the like­li­hood that the Fed­eral Re­serve will raise in­ter­est rates next month for the first time in a decade.

With Amer­i­cans spend­ing more on every­thing from restau­rant meals and cloth­ing to new cars, em­ploy­ers added an im­pres­sive 271,000 jobs last month. That was a strong re­bound from Au­gust and Septem­ber, when tur­moil in China and other economies over­seas proved a drag on the US job mar­ket.

Un­em­ploy­ment de­clined from 5.1 per­cent in Septem­ber and is now at its low­est point since April 2008, just a few months af­ter the Great Re­ces­sion be­gan.

Even be­fore Fri­day’s re­port, ex­pec­ta­tions for a Fed rate in­crease in De­cem­ber were build­ing. Fed chief Janet Yellen and other top of­fi­cials said this week that the econ­omy is gen­er­ally healthy and a move at next month’s meet­ing is a “live pos­si­bil­ity.”“This data tips the scales to­ward a rate hike in De­cem­ber, but more im­por­tantly is a sign that our econ­omy may have more punch than we thought,” said Tara Sin­clair, chief econ­o­mist for job site In­deed.com.

The Fed cut the short-term rate it con­trols to a record low of nearly zero in De­cem­ber 2008 to try to stim­u­late growth dur­ing the re­ces­sion. An in­crease would even­tu­ally raise bor­row­ing costs for mort­gages, auto loans and busi­ness loans.

The prospect of higher in­ter­est rates ini­tially drove down financial mar­kets Thurs­day, though stock in­dexes fin­ished mixed. The yield on the bench­mark 10-year Trea­sury note surged to 2.33 per­cent from 2.23 per­cent, sug­gest­ing that in­vestors see a greater like­li­hood of a rate in­crease.

Af­ter a pro­longed pe­riod of rel­a­tively stag­nant pay for many Amer­i­cans, hourly wages climbed a solid 9 cents in Oc­to­ber to $25.20. Av­er­age pay is up 2.5 per­cent in the past year, the largest an­nual gain since 2009. Strong hir­ing and pay raises, if they con­tinue, could make it harder for Repub­li­cans to mount ef­fec­tive at­tacks on the Obama ad­min­is­tra­tion’s eco­nomic record and could bol­ster Demo­cratic prospects in the 2016 elec­tions.

The pay gains should fuel more con­sumer spend­ing in com­ing months, which, in turn, could sup­port fur­ther hir­ing.

“Th­ese are very strong num­bers and likely to con­tinue,” said Carl Tan­nen­baum, chief econ­o­mist at North­ern Trust. “The two sum­mer months that were low now look like the aber­ra­tion.”

Manufacturing em­ploy­ment was flat in Oc­to­ber, af­ter two months of job cuts. The strong dol­lar and fal­ter­ing growth in China, Europe and Ja­pan have cut into ex­ports of fac­tory goods. Oil and gas drillers also shed work­ers as oil prices stayed low. But re­tail­ers added nearly 44,000 jobs last month, a sign that they ex­pect a good hol­i­day shop­ping sea­son. Ho­tels and res­tau­rants added 41,000, while health care providers hired nearly 57,000.

Higher-pay­ing sec­tors also gained, no­tably pro­fes­sional and busi­ness ser­vices, which in­clude ar­chi­tects, en­gi­neers and many IT work­ers. That sec­tor added 78,000 po­si­tions, the most in nearly a year.

Matt Fried­man, chief ex­ec­u­tive of the Wing Zone restau­rant chain, said he thinks lower gas prices are en­cour­ag­ing more peo­ple to eat out and boost­ing sales at his com­pany’s 93 US sites. Com­pany sales have grown 6 per­cent this year from 2014.

Wing Zone expects to open 15 stores this year and 19 next year. “Peo­ple are spend­ing more money,” Fried­man said. “Fuel prices have a big im­pact.” The com­pany re­ceives plenty of ap­pli­ca­tions for its hourly jobs and hasn’t had to in­crease pay for those po­si­tions to at­tract ap­pli­cants, Fried­man said.

But it has had to raise pay to fill pro­fes­sional jobs in mar­ket­ing, train­ing and op­er­a­tions, he said. Pay for those po­si­tions has in­creased about 10 per­cent in the past two years.

Eric Ren­ninger, vice pres­i­dent of Hon­est-1 Auto Care, said his 54-shop chain is see­ing ev­i­dence that cheaper gas is en­cour­ag­ing more travel. “You are see­ing peo­ple bring­ing in ve­hi­cles in prepa­ra­tion for road trips,” he said. The com­pany expects to open five more lo­ca­tions this year.

The econ­omy grew at just a 1.5 per­cent an­nual rate in the July-Septem­ber quar­ter. Still, Amer­i­cans boosted their spend­ing at a healthy 3.2 per­cent an­nual pace. Econ­o­mists ex­pect growth to re­bound to 2.5 per­cent or more in the fi­nal three months of the year. —AP

NEW YORK: A young girl plays in­side a store ad­ver­tis­ing a store clos­ing dis­count in New York on Novem­ber 6, 2015. —AFP

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