Payrolls in U.S. climb most this year, jobless rate at 5%

WASHINGTON – Employment snapped back with a vengeance in October, wage growth accelerated and the jobless rate fell to 5 percent, boosting the odds that Federal Reserve policymakers will raise borrowing costs next month.

The 271,000 gain in payrolls was the biggest this year and exceeded all estimates in a Bloomberg survey of economists, a Labor Department report showed Friday. The median forecast called for a 185,000 advance. Average hourly earnings climbed from a year earlier by the most since July 2009.

Treasuries tumbled and the dollar strengthened as the report allayed concerns of a hiring slowdown after weaker payrolls advances in the prior two months. Such improvement will probably means a green light for Fed officials, who last month held out the possibility of a December rate increase.

“It’s a solid labor market,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The report is pretty good across the board. December is now a very high likelihood for the Fed to hike rates.”

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Tony Bedikian, managing director of global markets at Citizens Bank, also weighed in on the report.

“This is a blockbuster number that shows a positive reversal from the last two months and a real sign of continued strength in the U.S. economy as we head into the holiday season. A lot more economic data is slated to be released between now and the Fed’s December meeting, but this is a positive step toward liftoff this year and should keep a December rate increase on the table as a live possibility. With a number like this — unless next month’s payroll number really falls flat — it seems all but a certainty, based on their recent comments, that the Fed will look to put a tightening on the board in December,” he said.
The report also showed diminishing labor-market slack. The number of Americans working part-time because of a weak economy fell to 5.7 million in October, the lowest since June 2008.

Prior months

Payroll estimates of 75 economists in the Bloomberg survey ranged from gains of 75,000 to 250,000 after a previously reported 142,000 September advance. Revisions to prior reports added a total of 12,000 jobs to payrolls in the previous two months. Still, employment only averaged 145,000 in August and September.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.9 percent to 1,230.51 at 8:44 a.m. in New York. The yield on the benchmark 10-year Treasury climbed 7 basis points, or 0.07 percentage point, to 2.3 percent.

Traders saw a 72 percent probability that the Fed would raise its benchmark rate next month, according to futures data compiled by Bloomberg, up from 56 percent before the jobs report’s release. The calculation assumes the effective fed funds rate averages 0.375 percent after the first increase.

The unemployment rate, which is derived from a separate Labor Department survey of households, is the lowest since April 2008.

Employment in October was led by the biggest gain in retail payrolls since November, the strongest hiring in construction in eight months and a pickup at temporary-help agencies. There was no change at the nation’s manufacturers.

Average hourly earnings rose by 0.4 percent from the prior month. Worker pay increased 2.5 percent over the 12 months ended in October, the most in more than six years, following a 2.3 percent gain the prior month. They had been stuck around near 2 percent on average since the current expansion began in mid-2009.

Underemployment rate

The underemployment rate – which includes part-time workers who’d prefer a full-time position and people who want to work but have given up looking – fell to 9.8 percent, the lowest since May 2008.

The participation rate, which shows the share of working-age people in the labor force, held at 62.4 percent.

Fed officials said last month that they’d consider a rate increase at their next gathering, and Fed Chair Janet Yellen this week echoed the view by saying December was a “live possibility.” One of the central bank’s preconditions for liftoff is “some further improvement” in the labor market. It next meets on Dec. 15-16, and an increase in the benchmark rate would be the first since 2006. It’s been near zero since December 2008.

American manufacturing has taken a hit with softening sales in overseas markets, a stronger dollar and oil-sector weakness depressing demand. Services, which account for about 90 percent of the economy, are relatively shielded and faring better.

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