Private Payrolls, Wage Data Point to Sturdy Job Market

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Lynne Sladky/AP
By Lucia Mutikani and Dan Burns

WASHINGTON -- U.S. private employers boosted hiring in November and wage growth appeared to pick up in the third quarter, signs of labor market strength that could support the first Federal Reserve interest rate increase in nearly a decade later this month.

The reports released Wednesday overshadowed data on slumping manufacturing activity and underscored the economy's solid fundamentals.

%VIRTUAL-pullquote-The data indicate a steady improvement in the labor market that should support the Fed's confidence that now is the right time to hike rates.%"The data indicate a steady improvement in the labor market that should support the Fed's confidence that now is the right time to hike rates," said Thomas Costerg, senior U.S. economist at Standard Chartered Bank in New York.

Private payrolls increased 217,000 last month on top of the 196,000 jobs added in October, the ADP National Employment Report showed. Employment gains were fairly healthy across the board, with manufacturing rebounding from two straight months of shedding jobs. The sector added 6,000 positions in November.

The ADP report, jointly developed with Moody's Analytics, was released ahead of Friday's Labor Department's more comprehensive employment report.

Though the ADP report isn't considered a reliable predictor of nonfarm payrolls, economists said it was broadly in line with their expectations for solid job gains in November. According to a Reuters survey, nonfarm payrolls increased 200,000 in November after surging 271,000 in October. Job growth is more than enough to keep up with population growth.

The Federal Reserve has signaled its intention to lift its benchmark overnight interest rate from near zero at its Dec. 15-16 meeting. Fed Chair Janet Yellen told the Economic Club of Washington that she was "looking forward" to a rate hike as that would be seen as "a testament ... to how far our economy has come."

The Fed last raised rates in June 2006. Market-based measures of Fed policy expectations assign a probability of 75 percent to the central bank's raising interest rates this month, according to the CME Group's FedWatch site.

The dollar rose against a basket of currencies, while U.S. stocks and government bond prices fell.

Labor strength, corroborated by a separate report from the Fed, should help ease concerns about the economy after a report on Tuesday showed manufacturing contracted in November for the first time in three years.

The Fed's Beige Book of anecdotal information on business activity collected from contacts nationwide showed the labor market continued to tighten modestly between early-October and mid-November. It said several districts reported difficulty finding skilled craftsmen and general laborers in the construction industry.

Wages Accelerating

A separate report from the Labor Department suggested wage growth, which has been frustratingly slow even as labor market conditions tighten, could be finally accelerating.

Compensation per hour in the third quarter rose at a 4 percent annual rate, and not the 3 percent pace the department had reported last month. Compensation was up a solid 3.6 percent from the third quarter of 2014.

Unit labor costs, the price of labor per single unit of output, were also revised higher to show them increasing at a 1.8 percent rate in the third quarter, instead of the previously reported 1.4 percent pace.

"The figures in today's report support the idea that wage inflation has picked up lately," said Daniel Silver, an economist at J.P. Morgan in New York.

While productivity growth, which measures hourly output per worker, was revised up to a 2.2 percent rate in the third quarter, the trend remained weak. Productivity was previously reported to have expanded at a 1.6 percent pace.

It increased only 0.6 percent from the third quarter of 2014, the smallest in nearly a year.

Economists blame softer productivity on lack of investment, which they say has led to an unprecedented decline in capital intensity.

9 Numbers That'll Tell You How the Economy's Really Doing
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Private Payrolls, Wage Data Point to Sturdy Job Market
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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