Pedestrians walk along Wall Street in front of the New York Stock Exchange (NYSE) (Photographer: Michael Nagle/Bloomberg)

U.S. Payrolls Rise More Than Forecast as Wage Gains Hit 3.1%

(Bloomberg) -- American workers enjoyed the biggest leap in pay since 2009 as job gains topped forecasts and the unemployment rate held at a 48-year low, a boost for President Donald Trump ahead of next week’s midterm elections and reason for the Federal Reserve to keep raising interest rates.

Nonfarm payrolls rose 250,000 after a downwardly revised 118,000 gain, a Labor Department report showed Friday. The median estimate in a Bloomberg survey called for an increase of 200,000 jobs. Average hourly earnings for private workers advanced 3.1 percent from a year earlier and the unemployment rate was unchanged from September at 3.7 percent, both matching projections.

U.S. Payrolls Rise More Than Forecast as Wage Gains Hit 3.1%

The figures give Republicans another economic accomplishment to tout ahead of Tuesday’s midterm elections as they seek to defend control of Congress from what polls indicate will be Democratic gains. The continued hiring and wage increases also reflect a tax-cut boost and reinforce expectations that the central bank will raise interest rates for a fourth time this year in December, though such an outlook may further unsettle investors who just sent U.S. stocks to their worst month since 2011.

“The labor market is cookin’, and that’s the bottom line,” said Ward McCarthy, chief financial economist at Jefferies LLC. “What’s really impressive is that the unemployment rate would’ve declined if the participation rate hadn’t risen, and that’s a good thing. You still have more people coming back to the labor market. There’s a lot to like.”

U.S. stock futures declined after the report, while the dollar trimmed losses and 10-year Treasury yields were higher.

The October data may be less of an indicator of the trend than usual because they reflect distortions from hurricanes both this year and last year. Meanwhile, the U.S. trade war with China poses a risk to further gains and companies may be slowing capital investment.

The Labor Department said 198,000 people weren’t at work due to bad weather, reflecting Hurricane Michael’s impact on Florida, following 299,000 in September amid Hurricane Florence. That compares with 36,000 people not at work due to weather in the year-ago period. Michael had “no discernible effect” on national employment and unemployment estimates for October, the Labor Department said.

What Our Economists Say

The October jobs report provided reassurance that the economy is on sound footing, despite the dramatic seesaw in the pace of hiring gains over the past several months. The breadth of job creation remains solid -- an important indication that the escalation of trade tensions is not being whitewashed by short-lived fiscal stimulus stemming from tax cuts. Furthermore, the pace of hiring is robust, especially after accounting for hurricane distortions.

-- Carl Riccadonna, Yelena Shulyatyeva and Tim Mahedy, Bloomberg Economics

Read more for the full note here.

Restaurants and bars -- an industry where most workers only get paid if they show up to work -- saw a 33,500 increase in payrolls, following a 10,000 decrease in September that reflected Florence’s impact.

Average hourly earnings rose 0.2 percent from the prior month, also matching analyst projections, following a 0.3 percent gain, the report showed. The annual increase of 3.1 percent followed a 2.8 percent advance.

The year-over-year change reflects possibly storm-boosted figures in October and storm-depressed numbers the prior year, though companies have also been steadily raising pay to attract and retain workers.

Even so, the long-awaited gains follow relatively tepid increases throughout the current expansion, which in mid-2019 will become the longest in U.S. history. The advances are probably still not rapid enough, though, to spur inflation concerns among Fed officials, rather keeping them on a path of gradual interest-rate hikes.

Here are other highlights from the report:

Payrolls
  • Revisions were a net wash for payrolls in prior two months, as August was revised up 16,000 and September revised down 16,000; three-month average gain of 218,000
  • Payroll increases were broad-based, including 30,000 in construction, 32,000 in manufacturing and 179,000 in services; retailers added 2,400 following a 32,400 decline
  • Private payrolls rose by 246,000, compared with median estimate of 195,000; government payrolls increased by 4,000

Wages
  • Average hourly earnings for production and non-supervisory workers increased 3.2 percent from a year earlier, following 2.8 percent in September
  • Average work week increased to 34.5 hours, from 34.4 hours in prior month; a shorter workweek has the effect of boosting average hourly pay