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Data sug­gest down­turn in eco­nomic ac­tiv­ity could sup­port ex­pec­ta­tions of fewer Fed rate hikes in 2019

U.S. job growth slowed in Novem­ber and monthly wages in­creased less than fore­cast, suggest­ing some mod­er­a­tion in eco­nomic ac­tiv­ity that could sup­port ex­pec­ta­tions of fewer in­ter­est rate in­creases from the Fed­eral Re­serve in 2019.

The slow­down in hir­ing re­ported by the Labour Depart­ment on Fri­day is likely the re­sult of worker short­ages. The Fed in its “Beige Book” re­port this week said most busi­ness con­tacts in its 12 dis­tricts said “that em­ploy­ment growth leaned to the slower side of a mod­est to mod­er­ate pace” be­cause of labour short­ages.

The labour mar­ket is con­sid­ered near or at full em­ploy­ment. Non-farm pay­rolls in­creased by 155,000 jobs last month, with con­struc­tion com­pa­nies hir­ing the fewest work­ers in eight months, likely be­cause of un­sea­son­ably chilly tem­per­a­tures.

“This is still a solid gain that sug­gests eco­nomic growth is grad­u­ally slow­ing back to­ward its po­ten­tial pace,” said Paul Ash­worth, chief economist at Cap­i­tal Eco­nomics in Toronto. “There is noth­ing here to sug­gest the econ­omy is suf­fer­ing a more sud­den down­turn.”

The mod­er­a­tion in job gains in Novem­ber also fits in with other data show­ing a rise in lay­offs in re­cent weeks and a de­cline in a mea­sure of ser­vices sec­tor em­ploy­ment last month.

Data for Septem­ber and Oc­to­ber were re­vised to show 12,000 fewer jobs added than pre­vi­ously re­ported. Economists polled by Reuters had fore­cast pay­rolls in­creas­ing by 200,000 jobs in Novem­ber. The un­em­ploy­ment rate was un­changed at near a 49-year low of 3.7 per cent as 133,000 peo­ple en­tered the labour force.

Av­er­age hourly earn­ings rose six US cents, or 0.2 per cent in Novem­ber. Oc­to­ber wage gains were re­vised down to 0.1 per cent from the pre­vi­ously re­ported 0.2 per cent. In the 12 months through Novem­ber, wages in­creased 3.1 per cent, match­ing Oc­to­ber’s jump, which was the big­gest gain since April, 2009.

Com­pa­nies also re­duced hours for work­ers. The av­er­age work­week fell to 34.4 hours from 34.5 hours in Oc­to­ber.

The em­ploy­ment re­port comes on the heels of soft Oc­to­ber data on the hous­ing mar­ket, busi­ness spend­ing on equip­ment as well as a jump in the trade deficit to a 10-year high that have height­ened con­cerns over the eco­nomic ex­pan­sion that is in its ninth year, the sec­ond long­est on record.

Growth fore­casts for the fourth quar­ter are around a 2.7-per-cent an­nu­al­ized rate. The econ­omy grew at a 3.5-per-cent pace in the third quar­ter.

Fears about the econ­omy’s health were stoked by a steep sell-off on Wall Street and a par­tial in­ver­sion of the U.S. yield curve.

Fol­low­ing the em­ploy­ment re­port, U.S. fi­nan­cial mar­kets con­tin­ued to price in one rate hike from the Fed in 2019, com­pared with ex­pec­ta­tions for pos­si­bly two rate hikes a month ear­lier, ac­cord­ing to CME Group Inc.’s FedWatch pro­gram.

The U.S. cen­tral bank is ex­pected to in­crease bor­row­ing costs on Dec. 18-19 for the fourth time this year.

The dol­lar was trad­ing lower against a bas­ket of currencies, while U.S. Trea­sury prices rose. U.S. stocks fell amid un­cer­tainty whether a 90-day truce agreed by U.S. Pres­i­dent Don­ald Trump and Chi­nese Pres­i­dent Xi Jin­ping over the week­end would hold and lead to a last­ing eas­ing of trade ten­sions be­tween the world’s two largest economies.

Fed chair­man Jerome Pow­ell last month ap­peared to sig­nal the cen­tral bank’s three-year tight­en­ing cy­cle was draw­ing to a close, say­ing its pol­icy rate was now “just be­low” the range of pol­icy-mak­ers’ es­ti­mates of a level that nei­ther cools nor boosts a healthy econ­omy.

Min­utes of the Fed’s Novem­ber pol­icy meet­ing pub­lished last week showed near- ly all of­fi­cials agreed an­other rate in­crease was “likely to be war­ranted fairly soon,” but also opened de­bate on when to pause fur­ther hikes.

“The outlook for 2019 is un­cer­tain in the face of the volatil­ity in the fi­nan­cial mar­kets and the weak in­fla­tion,” said Sung Won Sohn, chief economist at SS Eco­nomics in Los An­ge­les. “If the slow­down in em­ploy­ment gains con­tin­ues, the Fed will pause for a while to get a bet­ter fix on the econ­omy.”

A broader mea­sure of un­em­ploy­ment, which in­cludes peo­ple who want to work but have given up search­ing and those work­ing part-time be­cause they can­not find full-time em­ploy­ment, rose twotenths of a per­cent­age point to a five­month high of 7.6 per cent.

Wage gains were mod­er­ate de­spite on­line re­tail gi­ant Ama­zon.com Inc. raising its min­i­mum wage to $15 a hour for U.S. em­ploy­ees last month.

Job gains av­er­aged 170,000 a month over the past three months. The econ­omy needs to cre­ate roughly 100,000 a month to keep up with growth in the work­ing-age pop­u­la­tion.

A fur­ther slow­down in em­ploy­ment growth is likely. The num­ber of Amer­i­cans ap­ply­ing for un­em­ploy­ment ben­e­fits is near eight-month highs.

Re­tail em­ploy­ment rose by 18,200 jobs in Novem­ber, likely boosted by an early Thanks­giv­ing.

AN­DREW SPEAR/THE GLOBE AND MAIL

A worker is seen as­sem­bling var­i­ous parts for wash­ers and dry­ers at Staber In­dus­tries in Grove­port, Ohio, on Nov. 1. U.S. eco­nomic data for Septem­ber and Oc­to­ber show 12,000 fewer jobs added than pre­vi­ously re­ported.

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