The U.S. jobs machine powered up in October, proving the economy’s resilience amid a global slowdown and supporting the first Federal Reserve interest rate hike in nine years in December.
The Labor Department reported Friday that the economy pumped out a strong 271,000 net new jobs last month, nearly double the September number, sending the jobless rate down to a seven-and-a-half year low at 5.0%.
It was a far better performance than expected, and came after a two-month slump that had raised worries that a global growth stall was infecting the domestic economy. The numbers confirmed a firm upward trajectory for growth and a tightening of the labor market, signals the Fed has been looking for to justify beginning to raise interest rates in December after an unprecedented holding of them at the zero level for almost seven years.
Outside of job growth and unemployment, the other October numbers were nearly all strong:
- Wage growth picked up after several flat months, with average hourly earnings up nearly 2.5% year-on-year.
- The number of people forced to work part-time fell, and there was a slight rise in the employment-to-population ratio, potentially representing more holdouts are returning to the jobs market.
- Job gains were strongest in retail sales, health care, and restaurants, signs that American consumers are spending more. Construction jobs also jumped.
Taken together, the data represented a solid rebound after two weak months and a general slowdown in economic activity in the third quarter.
Manufacturing Still Stagnant
Though the entire non-farm U.S. economy posted its best monthly jobs gain since May, “manufacturing's failure to add any positions at all pushed the sector into its first jobs recession since the sector hit its last absolute employment bottom — in February and March of 2010,” said Alan Tonelson, who founded the RealityChek blog and covers manufacturing and broader economic issues. “Not coincidentally, according to the Federal Reserve's industrial production index, manufacturing is mired in an output recession as well.”
Total manufacturing employment, according to Tonelson, checks in at 12,317,000, about 10,000 fewer positions than in January. The sector has not suffered through this much stagnation since the start of the recession seven years ago, and while the numbers are still preliminary, non-farm manufacturing employment is down to a record-low 8.63%.
Manufacturing has created 80,000 net new positions year-on-year, far below the 197,000 created from October 2013 through October 2014, and even less than the 89,000 created from October ’12 through October ’13.
The sector has regained about 37.7% of the 2.29 million jobs lost during the recession. The private sector as a whole, in contrast, has regained about 13.49% of 8.80 million jobs lost.
Markets Expect Rate Rise
The average pace of job creation is enough to keep pushing down the unemployment rate, even as more people return to the jobs market, economists said.
Markets took it as a green light for the Fed to embark on a series of interest rate hikes at its December meeting, which Fed Chair Janet Yellen said Wednesday was a distinct possibility if economic growth holds up.
The dollar surged sharply to $1.0739 per one euro, its strongest level since April, and U.S. bond yields jumped, the 10-year Treasury rising to 2.34%, the highest since July.
Wall Street was little-affected in late-morning trade after an early fall on the data: the Dow Jones Industrial Average was off 0.12%.
“The case for tightening in December — and a lot more in 2016 — looks increasingly strong,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
Prospects for a rate increase has already provoked turmoil in global markets, with emerging-market currencies sinking and capital costs for governments and companies rising.
Some said a December rate increase was still not a sure thing, because there were some signs of weakness in the October data. The labor force participation rate, for example, remained low at 62.4%.
Dean Baker of the Center for Economic and Policy Research noted that manufacturing wages are still rising at a poor 2.0% pace, and that the data shows that workers still do not feel comfortable with opportunities in the market: The number voluntarily leaving their jobs remains very low.
“This is a much more positive report than we saw in the prior two months,” Baker said. “However, there is much in the report that indicates there is still a large amount of slack in the labor market.”
But others said the signs overall were of tightening and that would show up more fully in the data in the months to come.
“The Fed’s hawks will now argue that they have hard evidence in the most widely watched ... data that the tightness of the labor market is pushing wage gains higher,” said Ian Shepherdson of Pantheon Macroeconomics. “Barring a disaster in November, rates are going to rise in December.”
By Paul Handley
Copyright Agence France-Presse, 2015