Employment Report a Green Light for Fed to Raise Rates
By Lucia Mutikani
WASHINGTON -- U.S. employment increased at a healthy pace in November, in another sign of the economy's resilience, and will most likely be followed by the first Federal Reserve interest rate rise in a decade later this month.
Nonfarm payrolls rose 211,000 last month, the Labor Department said Friday. September and October data was revised to show 35,000 more jobs than previously reported.
The unemployment rate held at a 7½-year low of 5 percent, as people returned to the labor force in a sign of confidence in the jobs market. The jobless rate is in a range many Fed officials see as consistent with full employment and has dropped 0.7 of a percentage point this year.
%VIRTUAL-pullquote-The clear message from the labor market to the Fed is: 'Just do it!'%"The employment report should remove the final doubts about a rate hike at the December meeting. The clear message from the labor market to the Fed is: 'Just do it!'" said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.
The closely watched employment report came a day after Fed Chair Janet Yellen struck an upbeat note on the economy when she testified before lawmakers, describing how it had largely met the criteria the U.S. central bank has set for the Fed's first rate hike since June 2006.
Yellen said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working age population.
A Reuters survey of banks that deal directly with the Fed showed all but one of the so-called primary dealers expect the Fed will hike rates at the Dec. 15-16 meeting. They see only a gradual pace of monetary policy tightening through 2016.
The U.S. dollar firmed against the euro after European Central Bank President Mario Draghi said in New York that the ECB could deploy more stimulus if needed. U.S. Treasury debt yields initially rose, but later fell after OPEC failed to agree an oil production ceiling. U.S. stocks ended higher.
The second month of strong job gains should allay fears the economy has hit a soft patch, after reports showing tepid consumer spending in October and a slowdown in services industry growth in November. Manufacturing contracted in November for the first time in three years, according to one business survey.
A strong U.S. dollar and spending cuts by energy companies have been headwinds to the economy. A separate report from the U.S. Commerce Department on Friday showed the international trade deficit widened in October as exports hit a three-year low.
Though wage increases slowed last month, economists say that was mostly payback for October's outsized gains, which were driven by a calendar quirk. Anecdotal evidence, as well as data on labor-related costs, suggest that tightening job market conditions are starting to put upward pressure on wages.
"Payroll gains were despite continued weakness in manufacturing and energy sectors, suggesting little spillover into the rest of the economy," said Samuel Coffin, an economist at UBS in Stamford, Connecticut.
Average hourly earnings increased 4 cents, or 0.2 percent from 0.4 percent in October. That lowered the year-on-year reading to 2.3 percent from 2.5 percent in October. The average workweek, however, fell to 34.5 hours from 34.6.
Other labor market measures watched by Fed officials were mixed.
The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose to 62.5 percent from a near 38-year low of 62.4 percent.
But a broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment rose 0.1 of a percentage point to 9.9 percent. That reflected an increase in part-time workers.
Employment gains in November were broad-based, though manufacturing shed 1,000 positions. Factory employment has declined in three of the last four months.
Manufacturing has been crippled by dollar strength, efforts by businesses to reduce bloated inventory and investment cuts by energy companies scaling back well drilling and exploration in response to the sharply lower oil prices.
Mining purged 11,000 jobs, with oil and gas extraction losing 2,400 positions. Mining employment has dropped by 123,000 since reaching a peak in December 2014. Three quarters of the job losses over this period have been in support activities for mining.
Oilfield services provider Schlumberger (SLM) this week announced another round of job cuts in addition to 20,000 layoffs already reported this year.
Construction payrolls increased 46,000 last month, the largest gain since January 2014. Retail jobs rose 30,700 and transportation and warehousing employment rebounded after two straight months of declines.
Professional services added 27,000 jobs and government payrolls increased 14,000 last month.
"It's hard not to like today's reading on the labor market. We can anticipate further improvement ... next year," said Scott Anderson, chief economist at Bank of the West in San Francisco.