Hiring surges in U.S. jobs report
With unemployment declining to 5 percent, Federal Reserve has stronger case to raise interest rates
Hiring at U.S. companies shifted into higher gear in October, helping to lift wages and clearing the path for the Federal Reserve to raise interest rates next month.
The 271,000 jump in payrolls reported by the Labor Department on Friday was much more robust than expected and suggested that the economy had enough strength to allow the central bank to begin its move away from the crisis-level interest rate policy it has been following for nearly eight years.
Fed officials were poised to raise short-term interest rates from near zero earlier this year, but they held off as economic conditions overseas worsened and domestic job growth slackened in August and September.
But now the underlying solidity evident in the October report is expected to strengthen the hand of monetary policy hawks who favor an increase in short-term rates, while reassuring Janet Yellen, the chair of the Federal Reserve, and her centrist col-
leagues that the economy can handle modestly higher borrowing costs.
This week, Yellen told a panel on Capitol Hill that an increase in December was a “live possibility” if the economy continued to perform well.
“It was pretty much everything you could ask for in a jobs report,” said Michelle Meyer, deputy head of U.S. economics at Bank of America Merrill Lynch. “Not only was the headline number strong but there were upward revisions for prior months, the unemployment rate fell and wage growth accelerated.
“Things could still go wrong between now and December, but the odds are better than even that the Fed will raise rates next month.”
The unemployment rate dipped to 5 percent, from 5.1 percent in September. Average hourly earnings also bounced back, rising 0.4 percent in October after showing no increase in September; that lifted the gain to 2.5 percent over the last 12 months, the healthiest rate since 2009.
Along with altering the landscape for policymakers in Washington and traders on Wall Street, if the strength in the labor market in October persists, it could also shift the political debate as the 2016 presidential campaign heats up.
A strong economy tends to favor the incumbent party in the White House, and it could blunt Republican attacks on President Barack Obama’s economic record, which have been a mainstay of the GOP candidates’ message.
Significant pockets of economic weakness remain.
Despite the increase in pay last month, most workers will need bigger raises for some time to come to make up for ground lost after a long period of wage stagnation.
At the same time, many Americans remain on the sidelines of the job market, discouraged by years of lackluster hiring after the Great Recession.
The proportion of Americans who are in the labor force, which fell to a 38-year low of 62.4 percent for September, was unchanged last month.
Still, at 5 percent, the unemployment rate is very close to what would normally be considered the threshold for full employment by the Fed and many private economists.
The slack that built up in the labor market after the recession, however, has changed traditional calculations of how far unemployment can fall before the job market tightens and the risk of inflation rises.
The Labor Department’s broadest measure of unemployment, which includes workers forced to take part-time jobs because full-time work is unavailable, fell to 9.8 percent in October from 10 percent in September.
A year ago, it was over 11 percent.
On Wall Street, stocks had a mixed reaction Friday to the surprisingly strong October jobs report as investors adjusted to the prospect of higher interest rates as early as next month.