US econ­omy looks strong head­ing into elec­tions

The Oklahoman (Sunday) - - EXTRA - BY CHRISTO­PHER RUGABER AP Eco­nom­ics Writer

WASH­ING­TON — For a U.S. eco­nomic ex­pan­sion now in its 10th year, hir­ing re­mains ro­bust, growth has picked up and the out­look is a mostly bright one on the eve of con­gres­sional elec­tions.

On Fri­day, the gov­ern­ment re­ported that em­ploy­ers added a strong 250,000 jobs in Oc­to­ber and that the un­em­ploy­ment rate re­mained 3.7 per­cent, the low­est level in nearly 50 years. Pay also rose at a healthy pace. Con­sumers are con­fi­dent, spend­ing freely, fu­el­ing brisk eco­nomic growth and en­cour­ag­ing em­ploy­ers to keep hir­ing.

Here are five gauges of the U.S. econ­omy:

Wages rev up

Many em­ploy­ers have long com­plained that they can’t find enough work­ers to fill jobs. But in re­cent months it ap­pears they have fi­nally taken the step econ­o­mists have long rec­om­mended: Pay more. Av­er­age hourly earn­ings rose 3.1 per­cent in Oc­to­ber from a year ear­lier, the sharpest year-over-year gain since 2009.

In­fla­tion has also in­creased in the past year, erod­ing some of the value of that in­crease. And a storm-re­lated drop in av­er­age wages a year ago, re­sult­ing from Hur­ri­cane Har­vey, helped in­flate Oc­to­ber’s gain. Still, the pay growth sug­gests that the ben­e­fits of a healthy econ­omy are rip­pling out to more peo­ple.

More peo­ple work­ing

With the un­em­ploy­ment rate so low, many econ­o­mists have ex­pected hir­ing to de­cline as busi­nesses face a dwin­dling sup­ply of un­em­ployed peo­ple. Yet that hasn’t hap­pened. Av­er­age monthly hir­ing this year is above the pace of 2017.

The vigor of the job mar­ket is help­ing lead some Amer­i­cans who were nei­ther work­ing nor look­ing for work to be­gin seek­ing a job. (Peo­ple who don’t have a job aren’t counted as un­em­ployed un­less they’re ac­tively look­ing for work.) In Oc­to­ber, the pro­por­tion of Amer­i­cans with jobs reached its high­est level in 10 years.

Many of em­ploy­ers’ most re­cent hires had strug­gled through much of the na­tion’s 10-year re­cov­ery from the Great Re­ces­sion. The pro­por­tion of peo­ple with­out a high school diploma who are now work­ing is the high­est on records dat­ing to 1992. And the pro­por­tion of teenagers with jobs is at the high­est level in a decade.

Con­sumers spend­ing freely

More jobs at higher pay have helped un­der­pin a burst of con­sumer spend­ing. The Trump ad­min­is­tra­tion’s tax cuts have likely also con­trib­uted. Amer­i­cans in­creased their spend­ing by 4 per­cent in the July-Septem­ber quar­ter, the big­gest ac­cel­er­a­tion in nearly four years. That spend­ing helped the econ­omy grow at a 3.5 per­cent an­nual rate last quar­ter.

Yet Amer­i­cans are still sav­ing a de­cent chunk of their in­come, with lit­tle sign that most peo­ple are amass­ing a risky level of debt. Sav­ings equaled roughly 6.4 per­cent of in­come in the third quar­ter, up from a low of 2.5 per­cent in 2005.

Hous­ing is a weak spot

Ris­ing bor­row­ing costs are weigh­ing on home sales, pro­vid­ing a pre­view of what might hap­pen in the econ­omy more broadly as in­ter­est rates rise and make loans more ex­pen­sive.

The Fed­eral Re­serve has been rais­ing short-term rates to try to pre­vent the econ­omy and in­fla­tion from ex­pand­ing too fast. The Fed’s credit tight­en­ing has led to higher rates for the av­er­age 30-year fixed mort­gage — 4.8 per­cent, up from 3.9 per­cent a year ago.

As mort­gage rates have risen, co­in­cid­ing with higher home prices, sales of ex­ist­ing homes have fallen for six straight months. The Fed is ex­pected to raise rates for a fourth time this year in De­cem­ber, and econ­o­mists ex­pect at least two fur­ther hikes next year. Other shad­ows loom Busi­nesses are nearly as op­ti­mistic as con­sumers. But they aren’t spend­ing as rapidly. Cor­po­rate in­vest­ment in ma­chin­ery, com­put­ers and other equip­ment barely rose in the July-Septem­ber quar­ter, af­ter two quar­ters of solid gains.

Spend­ing on fac­to­ries and other build­ings fell. Some of the third quar­ter’s weak­ness re­flected lower spend­ing on oil and gas drilling equip­ment as oil prices fell.

But it also sug­gests that the Trump ad­min­is­tra­tion’s tax cuts for busi­nesses haven’t spurred as much in­vest­ment spend­ing as the ad­min­is­tra­tion had pre­dicted. More in­vest­ment in ma­chin­ery and com­put­ers would help make the work­force more ef­fi­cient and spur faster growth.

Sur­veys of man­u­fac­tur­ers sug­gest that Trump’s trade war with China may have caused some of them to de­lay pur­chases of new equip­ment. Higher tar­iffs on Chi­nese im­ports have raised costs for many man­u­fac­tur­ers.

For all the pos­i­tive news, these trends have caused many econ­o­mists to fore­cast slower growth in the fi­nal months of this year and into 2019. The econ­omy ap­pears on track to ex­pand 3 per­cent this year, the fastest since 2005. But Fed pol­i­cy­mak­ers ex­pect growth to slide to 2.5 per­cent rate next year and to 2 per­cent in 2020.

As mort­gage rates have risen, co­in­cid­ing with higher home prices, sales of ex­ist­ing homes have fallen for six straight months. The Fed is ex­pected to raise rates for a fourth time this year in De­cem­ber, and econ­o­mists ex­pect at least two fur­ther hikes next year.

[AP PHOTO]

Loredana Gon­za­lez, of Do­ral, Fla., fills out a job ap­pli­ca­tion at a JobNewsUSA job fair in Mi­ami Lakes, Fla.

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