Solid job gains clear way for rate hike
If the Federal Reserve needed any final evidence that the economy is ready for higher interest rates, it got it Friday.
A solid November job gain of 211,000 showed that despite weak overseas growth and struggling U.S. factories, the U.S. economy appears healthy enough to withstand a Fed hike from record-low rates later this month.
The unemployment rate remained at a low 5 percent in November for a second- straight month, the government said Friday. More Americans started looking for jobs, and nearly all found them.
Average hourly pay rose, though modestly, and the government revised up its estimate of job growth for September and October. Employers have added a robust average 213,000 jobs a month over the past six months.
The healthy jobs figures indicate that consumer spending is helping the economy surmount some lingering challenges. They include a strong dollar, which has made exports pricier overseas and squeezed U.S. manufacturers, and sinking oil prices, which have led drilling companies to slash orders for steel pipes and other equipment.
Even so, Americans are spending more on restaurant meals and on big-ticket items such as cars and homes.
The U.S. economy “is strong enough to withstand an initial hike in interest rates from what were seen as emergency record-low levels,” said Chris Williamson, chief economist at Markit. “A December rate hike now looks to be in the bag.”
The economy’s strengths were evident in last month’s hiring patterns: Construction firms added 46,000 jobs, the biggest increase in two years. Spending on construction projects, including homes, roads and office towers, reached an eight-year high in October.
In addition, restaurants added 31,500 positions, retailers nearly 31,000.
Investors cheered the jobs report, which helped send the Dow Jones industrial average soaring 360 points in afternoon trading.
This week, Fed Chair Janet Yellen said the economy appeared to be improving enough to justify a rate hike as long as no major shocks undermined growth before the Fed meets Dec. 15-16. The Fed has kept its key short-term rate at a record low near zero for seven years.
A Fed rate hike typically lifts interest rates for mortgages, auto loans and other borrowing, though those increases might not occur immediately.
For the Fed, conditions seem nearly ideal for a period of small and only gradual rate increases in coming months: Job growth has been solid, and wages have begun to rise but not so much as to cause concern about future high inflation.
Since the recession ended, average hourly pay has grown at only about two-thirds of the pace typical of a healthy economy.
In November, average hourly wages rose 2.3 percent from 12 months earlier to $25.25. That is below October’s annual increase, which had been the strongest in six years. It’s still far below the roughly 3.5 percent pace typical of a strong economy.
Still, many economists say they’re optimistic that Americans’ pay will keep rising. Companies are advertising near-record levels of available jobs. And layoffs are at very low levels. Both figures point to strong demand for workers.