Widespread U.S. hiring sets table for rate hike
The government report suggests the U.S. economy is rebounding after a worrisome summer and is outshining most other major economies
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WASHINGTON—U.S. hiring roared back in October after two weak months, with employers adding a robust 271,000 jobs and likely setting the stage for the Federal Reserve to raise interest rates next month.
The unemployment rate dipped to a fresh seven-year low of 5 per cent from 5.1 per cent.
The burst of hiring, the most since December, filled jobs across a range of industries as companies shrugged off slower overseas growth and a weak U.S manufacturing sector. Significant job gains occurred in construction, health care and retail.
Friday’s report from the government suggested that the U.S. economy is rebounding after a worrisome summer and is continuing to outshine most other major economies. During August and September, hiring had flagged amid financial turmoil in China and faltering growth in Europe and emerging markets.
Even so, American consumers have kept spending at a healthy pace, supporting strong job growth even as factory payrolls were flat last month and oil and gas drillers cut jobs.
Soon after Friday’s report was released, the prospect of higher interest rates drove down financial markets. Futures on the Dow Jones industrial average fell 51 points in early trading.
After a prolonged period of relatively stagnant pay raises for many Americans, last month’s robust hiring also raised wages 9 cents to $25.20. That is 2.5 per cent higher than 12 months ago, the largest year-over-year gain since July 2009. That is comfortably above inflation, which was been flat in the past year.
“This is a fantastic jobs number at this point in the recovery, and we’re also finally seeing strong wage gains,” said Tara Sinclair, Chief Economist for job site Indeed. “This data tips the scales toward a rate hike in December, but more importantly is a sign that our economy may have more punch than we thought.”
Retailers added nearly 44,000 jobs in October, the most since last November, a sign that they are preparing for strong sales over the winter holidays. Hotels and restaurants added 41,000.
Many higher-paying sectors also enjoyed healthy gains, including professional and business services, which includes lawyers, architects and engineers. That sector added 78,000 positions, the most in nearly a year. Those gains also included nearly 25,000 temporary jobs.
Some economists suggested that the explosiveness of October’s job growth might have been due in part to a bounce back from the tepid gains in August and September, when concerns about the global economy led some employers to hold back.
“We see some makeup from hiring that was put off when the economy was hesitant in the late summer and early autumn,” said Patrick O’Keefe, director of economic research at CohnReznick.
Any gain above roughly 150,000 was expected to keep Fed policymakers on track to raise interest rates from record lows at their Dec. 15-16 meeting, though the Fed will have one more jobs report, to digest before then.
Chair Janet Yellen and other leading Fed officials have said that the economy is generally healthy and that the December meeting is a “live possibility” for a rate hike.
Strong hiring should continue to reduce the unemployment rate over time. The economy typically needs only about 100,000 jobs a month to keep the unemployment rate from rising. That figure has fallen in recent years as the aging population and increasing retirements by baby boomers have slowed the growth of the U.S. workforce.
Other recent data also suggest that global turmoil and manufacturing’s rough patch haven’t slowed U.S. economic growth. Consumers, the biggest driver of the economy, are spending at a healthy clip, aided in part by lower gas prices and a recovery in the stock market.
The economy grew at just a 1.5 per cent annual rate in the July-September quarter. The slowdown occurred mostly because businesses cut back on their stockpiles, and exports weakened.
Still, Americans boosted their spending at a healthy 3.2 per cent annual pace, down just a few tenths from the second quarter. Solid consumer demand has encouraged many services firms, which make up roughly 80 per cent of the economy, to step up hiring.
Overall, services firms expanded last month at the fastest pace in three months. That’s in sharp contrast to the ISM’s survey of manufacturing firms, which barely grew in October.
-AP Economics Writer Josh Boak contributed to this report.