US job data boosts case for rate hike

Mr Kyle Tennessen (left), branch manager at the Command Center temporary employment agency giving a day job assignment to two men, in Williston, North Dakota, on Sept 6, 2016.
Mr Kyle Tennessen (left), branch manager at the Command Center temporary employment agency giving a day job assignment to two men, in Williston, North Dakota, on Sept 6, 2016. PHOTO: AFP

WASHINGTON • United States employers maintained a strong pace of hiring last month and boosted wages for workers, which could effectively seal the case for a December interest rate increase from the Federal Reserve.

Non-farm payrolls increased by 161,000 jobs last month, the Labour Department said yesterday. August and September data was revised to show 44,000 more jobs created than previously reported.

The unemployment rate fell one-tenth of a percentage point to 4.9 per cent, in part as people dropped out of the labour force.

The closely watched employment report was published four days before the Nov 8 presidential election. It came on the heels of data last week showing an acceleration in economic growth in the third quarter.

But economists see little impact from the report on an increasingly bitter and divisive campaign.

"There is so much noise out there right now, everyone is screaming from the rooftops. I just don't know that any particular data point is going to have a great bearing on the election, in and of itself," said senior economist Sam Bullard of Wells Fargo Securities in Charlotte, North Carolina.

Though the US central bank is expected to increase borrowing costs next month, that decision will likely depend on the outcome of Tuesday's election.

The tight race between Democratic candidate Hillary Clinton and her Republican rival Donald Trump has rattled financial markets.

Economists polled by Reuters had forecast payrolls increasing by 175,000 jobs last month and the unemployment rate falling one- tenth of a percentage point to 4.9 per cent.

The Fed on Wednesday left interest rates unchanged but said its monetary policy-setting committee "judges that the case for an increase in the federal funds rate has continued to strengthen".

It lifted its benchmark overnight interest rate last December for the first time in nearly a decade.

"The election could still derail the Fed's plans, particularly if a very close result led to one or both candidates contesting it via the courts," said chief economist Paul Ashworth of Capital Economics in Toronto.

The trend in employment growth has slowed as the labour market nears full employment and the economy's recovery from the 2007-2009 recession shows signs of ageing.

Employment growth so far this year has averaged 181,000 jobs per month, down from an average gain of 229,000 per month last year. Still, the monthly job gains are more than enough to absorb new entrants into the labour market.

Fed chairman Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the work-age population.

The prospects of an interest rate hike next month were also bolstered by a solid rise in wages. Average hourly earnings increased 10 cents or 0.4 per cent last month after advancing 0.3 per cent in September.

The participation rate, or the share of working-age Americans who are employed or at least looking for a job, fell 0.1 percentage point to 62.8 per cent last month, not too far from multi-decade lows, in part reflecting demographic changes.

The solid payrolls gain accompanied by the surge in wages could support consumer spending heading into the holiday season, and in turn keep the economy on a relatively higher growth path.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 05, 2016, with the headline 'US job data boosts case for rate hike'. Print Edition | Subscribe