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Employment

More Jobs and Higher Wages: U.S. Recovery Starts to Hit Home

Burgess COMMENTARY

Peter Burgess

ECONOMY More Jobs and Higher Wages: U.S. Recovery Starts to Hit Home Photo Construction workers on a site in Olmsted, Ill. For the year as a whole, the gain in jobs is shaping up as the best in 15 years. Credit Brandon Dill for The New York Times After more than five years of elusive gains, ordinary Americans may finally be about to see the benefits of the recovery where it really counts: in their pocketbooks and wallets. The Labor Department reported Friday that employers added 321,000 jobs in November — a much stronger number than expected — but perhaps even more significant was the biggest gain in average hourly earnings since June 2013. Hourly earnings rose by 0.4 percent in November, double what economists had been expecting. That gain in hourly pay was significantly above the measly 0.1 percent increase in October, let alone the unchanged number in September. At the same time, the number of hours worked ticked up by one-tenth, adding to pay envelopes. A health-care career fair in Denver last month. A survey showed that about 683,000 people were hired to new jobs in October. Jobs Data Show Steady Gains, but Stagnant Wages Temper Optimism NOV. 7, 2014

Students attend a career fair at the University of Illinois in Springfield, Ill.Jobless Rate in U.S. Falls Below 6% as Hiring Picks UpOCT. 3, 2014

“The pairing of strong hiring and wage gains is a really strong indicator of the health of the economy,” said Tara Sinclair, chief economist at Indeed.com, a leading job search website. “Now, we want to see people coming back into the work force and also finding the right jobs for them in terms of wages, skills, and hours.”

President Obama on Friday announced economic data that indicated a continued increase in job creation and wage levels. Video by Reuters on Publish Date December 5, 2014. Photo by Susan Walsh/Associated Press.

The pickup in wage growth is coming as gasoline prices are plunging, providing a double boon for consumers and retailers with the holiday shopping season underway.

For the year as a whole, the gain in jobs, with one month still to go, is shaping up as the best in 15 years.

In economics most things cut both ways, however, and Friday’s report was no exception.

The nascent labor market strength makes it more likely the Federal Reserve will start raising short-term interest rates sooner rather than later. Most economists expect the central bank to increase interest rates in mid-2015, after leaving them near zero since the depths of the financial crisis in late 2008. Some now argue that the Fed may move to raise its key interest rate lever as early as March next year, but most are still sticking with midyear.

As positive as the figures for November were, one month’s data probably isn’t enough to shift the Fed’s thinking, said Guy Berger, chief United States economist at RBS. “You’d have to see these kinds of number over the next three or four months, then March comes into play,” he said. “Our view now is that the first rate hike will come in June.”

In particular, Mr. Berger noted that there was a risk the jump in hourly earnings represented a catch-up from weak readings in September and October, rather than an inflection point. “The coming months will tell us whether November was a fluke or the beginning of a sustained pickup from the 2 percent annual wage gains we’ve had over the past four years,” he said.

Although the prospect of higher interest rates tends to make investors more cautious, Wall Street rallied Friday, with traders figuring a better job market and better-paid consumers outweighed whatever cooling effect higher borrowing rates could have. In midday trading, major market indices were up about 0.4 percent.

Although government number crunchers try to adjust for seasonal swings like hiring by stores ahead of the holiday, retailing still showed unusual strength, adding 50,000 workers in November. That was more than twice the average monthly gain of 22,000 retail workers over the last year.

Manufacturers, often seen as a bellwether of swings in the broader economy and a source of good blue-collar jobs, particularly for men, hired 28,000 workers in November. Health care employment jumped by 29,000, bringing total gains in the field over the last 12 months to 261,000.

“In one line: Spectacular and, more to the point, believable,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “The key thing if you look at the run over the last few months is that this was a number waiting to happen. We’ve had strong hiring indicators in a number of surveys, and lower jobless claims, so sooner or later, we were going to get a blockbuster number.”

Mr. Shepherdson cautioned that while he was pleased by the stronger hourly wage gain in November, he wanted to see it continue for several months before he would be convinced higher wages were here to stay. “I’ve had my fingers burned before, but the timing of this uptick is consistent with other evidence of economic growth.”

The unemployment rate remained unchanged from last month at 5.8 percent, the Labor Department said Friday.

Government statisticians also revised upward the number of jobs added in September and October by 44,000, another good sign.

’12 ’13 ’14 +300 +200 +100 -100 Change in jobs In thousands +321,000 November ’12 ’13 ’14 6.0 6.5 7.0 7.5 8.0 8.5 Unemployment rate 5.8% November Source: Bureau of Labor Statistics

Wall Street had been expecting payrolls to grow by 230,000 in November, with the unemployment rate remaining unchanged. November’s gain was the largest monthly jump in payrolls in nearly three years.

Despite the deep economic frustration many Americans feel, evident in everything from public opinion surveys to water cooler chats to last month’s Congressional elections, the American economy has made significant progress this year. In November 2013, for instance, the unemployment rate was 7 percent, and the jobless rate five years ago this month was 9.9 percent.

A Federal Reserve survey of economic conditions across the country released Wednesday reported healthier consumer spending in many regions, likely as a result of lower gas prices, as well as gains in hiring.

Last month, average gasoline prices in the United States fell below $3 a gallon for the first time since 2010, amid a global plunge in crude prices. Crude oil has kept dropping since then, to about $66 a barrel, which suggests prices at the pump have further to drop.

As of Monday, gas prices in the United States averaged $2.77 a gallon, according to the Energy Information Administration, compared with $3.26 in December 2013. If gas prices stay where they are, the typical household will save roughly $600 over the next 12 months.

The overall expansion of the economy, as measured by the annual rate of growth in gross domestic product per quarter, has also been picking up steam.

In late November, the Commerce Department revised upward its estimate of the growth rate in the third quarter to 3.9 percent from an initial figure of 3.5 percent. Output rose at an annual rate of 4.6 percent in the second quarter, a snapback from the contraction in the first few months of the year.

Wall Street, too, has been surging, with stocks hitting highs repeatedly in recent weeks.

Finally, the section of the economy that helped lead the way down — housing — has made an impressive recovery, at least in terms of home values, if not new construction.

The real estate sector could be dealt a setback if the Federal Reserve raises interest rates next year, as is widely expected, but in more affluent areas in particular, surging home prices have already helped restore much of the confidence that was shattered in the financial crisis of 2008 and the deep recession that followed.

So why the persistent gloom, not to mention anger?

Until now, wage gains for the vast majority of Americans who kept their jobs throughout the downturn and then the recovery have been very modest. The 2 percent wage increase over the last year is barely enough to keep up with inflation or rising costs for many services, like education, insurance and health care.

For wages to show meaningful gains over a sustained period of time, as was the case in the 1990s, the unemployment rate will have to drop further, perhaps below 5 percent, said Diane Swonk, chief economist at Mesirow Financial in Chicago.

“We’re not back to the 1990s, nowhere near it,” Ms. Swonk said. “But the good news is that we’re making progress.”