Unemployment rate falls to 9-year low

4.6% figure is lowest since August 2007

The labor market perked up modestly in November as employers added 178,000 jobs and the unemployment rate fell to a nine-year low, providing more evidence of a solid economy in the final payroll report before an expected Federal Reserve interest rate increase.

The unemployment rate, which is calculated from a different survey than the payroll total, fell from 4.9% to 4.6%, lowest since August 2007, the U.S. Labor Department said Friday. That’s because 226,000 Americans left the labor force, which includes those working and looking for jobs.

Economists surveyed by Bloomberg expected 180,000 job gains.

Businesses added 156,000 jobs, led by professional and business services.. Federal, state and local governments added 22,000.

Payroll gains for September and October were revised down by a total 2,000. September’s was revised to 208,000 from 191,000, and October’s, to 142,000 from 161,000.

Average hourly wages pulled back after two solid advances, falling 3 cents to $25.89. Earnings are up 2.5% the past year, down from a seven-year high of 2.8% the previous month. The Fed is seeking faster wage gains as a sign of accelerating inflation before boosting its benchmark interest rate for the first time this year. Yet monthly wage figures are volatile and the Fed is likely “to downplay the significance of one weak reading,” says economist Jim O’Sullivan of High Frequency Economics.

Barclays economist Michael Gapen believes the Fed will place more emphasis on the sharply declining unemployment rate and smaller labor force, which “are likely to

place further upward pressure on inflation” as employers lift paychecks to attract workers.

“There’s absolutely nothing (in the report) that says to the Fed they shouldn’t” raise rates at a mid-December meeting, says economist Joel Naroff of Naroff Economic Advisors.

Meanwhile, a broader measure of unemployment that includes discouraged workers on the sidelines and part-time employees who prefer full-time jobs, as well as the unemployed, dropped from 9.5% to 9.3%, lowest since April 2008.

Hurricane Matthew, which hit the Southeast in early October, seemed to suppress employment that month.

More broadly, however, average monthly job growth has moderated this year to about 180,000 from a pace of 229,000 in 2015. While employer demand remains solid, the low unemployment rate has spelled a reduced supply of workers, slowing hiring.

The November employment gains “are about as good as you can get given the lack of available workers,” Naroff says.

Yet noting the economy has created jobs for a record 74 straight months, Deputy Labor Secretary Chris Liu said in an interview: “It highlights the stark contrast of the economy we inherited and the one we’re passing off to our successor.” The U.S. was in the throes of the Great Recession and losing hundreds of thousands of jobs each month when President Barack Obama took office in January 2009.

Fed officials have said monthly additions of only about 100,000 are needed to continue to bring down the jobless rate. But earlier this year, a return of discouraged workers to the labor force kept unemployment elevated and appeared to temper wage pressures, giving policy-makers more leeway to leave rates lower a bit longer without stoking inflation.

With the labor force shrinking in October and November, some economists believe that trend largely has played out, keeping the Fed on track to lift rates this month.