Strong US job growth, ris­ing wages boost rate hike hopes

Non­farm pay­rolls in­crease 161,000 in Oc­to­ber

Kuwait Times - - BUSINESS -

WASHINGTON:

US 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. Non­farm pay­rolls in­creased by 161,000 jobs last month amid gains in con­struc­tion, health­care and pro­fes­sional and busi­ness ser­vices, the La­bor Depart­ment said yes­ter­day.

Adding to the re­port’s strong tone, Au­gust and Septem­ber data was re­vised to show 44,000 more jobs cre­ated than pre­vi­ously re­ported. Av­er­age hourly earn­ings in­creased 10 cents in Oc­to­ber. As a re­sult, the year-on-year gain in wages last month was the largest in nearly 7-1/2 years.

“All in all, the data fits per­fectly with a Fed hike in De­cem­ber,” said Alan Ruskin, global co-head of FX re­search at Deutsche Bank in New York. The un­em­ploy­ment rate fell one-tenth of a per­cent­age point to 4.9 per­cent, in part as peo­ple dropped out of the la­bor force.

The closely watched em­ploy­ment re­port was pub­lished four days before the Nov 8 pres­i­den­tial elec­tion. It came on the heels of data last week show­ing an ac­cel­er­a­tion in economic growth in the third quar­ter. But econ­o­mists see lit­tle im­pact from the re­port on an in­creas­ingly bit­ter and di­vi­sive cam­paign. “There is so much noise out there right now, every­one is scream­ing from the rooftops. I just don’t know that any par­tic­u­lar data point is go­ing to have a great bear­ing on the elec­tion, in and of it­self,” said Sam Bullard, se­nior economist at Wells Fargo Se­cu­ri­ties in Char­lotte, North Carolina.

Though the US cen­tral bank is ex­pected to in­crease bor­row­ing costs next month, that de­ci­sion will likely de­pend on the out­come of Tues­day’s elec­tion. The tight race be­tween Demo­cratic can­di­date Hil­lary Clin­ton and her Repub­li­can ri­val Donald Trump has rat­tled fi­nan­cial mar­kets.

The dol­lar raced to ses­sion highs against the yen and the euro af­ter the re­port. US Trea­suries fell, while US stock in­dex fu­tures trimmed losses. Econ­o­mists polled by Reuters had fore­cast pay­rolls in­creas­ing by 175,000 jobs last month and the un­em­ploy­ment rate fall­ing to 4.9 per­cent from 5.0 per­cent.

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 twotenths of a per­cent­age point to 9.5 per­cent last month. That was the low­est level since April 2008.

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.

“The elec­tion could still de­rail the Fed’s plans, par­tic­u­larly if a very close re­sult led to one or both can­di­dates con­test­ing it via the courts,” said Paul Ash­worth, chief economist at Cap­i­tal Eco­nom­ics in Toronto.

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.

The prospects of an in­ter­est rate hike next month were also bol­stered by a solid rise in wages. Av­er­age hourly earn­ings in­creased 0.4 per­cent in Oc­to­ber af­ter ad­vanc­ing 0.3 per­cent in Septem­ber. That pushed the year-on-year in­crease to 2.8 per­cent, the big­gest gain since June 2009, from 2.7 per­cent in Septem­ber.

The Fed on Wed­nes­day struck a fairly up­beat note on in­fla­tion, say­ing price pres­sures had “in­creased some­what since ear­lier this year.” De­spite the la­bor market near­ing full em­ploy­ment, wage growth has been mod­er­ate. 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. — Reuters

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