American wages unexpectedly climbed in August by the most since the recession ended in 2009 and hiring rose by more than forecast, keeping the Federal Reserve on track to lift interest rates this month and making another hike in December more likely.
Average hourly earnings for private workers increased 2.9 percent from a year earlier, a Labor Department report showed Friday, exceeding all estimates in a Bloomberg survey and the median projection for 2.7 percent. Nonfarm payrolls rose 201,000 from the prior month, topping the median forecast for 190,000 jobs. The unemployment rate was unchanged at 3.9 percent, still near the lowest since the 1960s.
Treasury yields and the dollar jumped after the report, while U.S. stocks opened lower as investors saw the data as encouraging Fed Chairman Jerome Powell to keep tightening monetary policy beyond this month.
A lack of wage gains has been a major blemish on an economy that President Donald Trump has called the strongest ever -- and is currently being boosted by his tax-cut stimulus. Some investors had speculated the Fed would pause after this month given an escalating trade war and turmoil in emerging markets.
“The labor market looks great,” said Ward McCarthy, chief financial economist at Jefferies LLC in New York. Weak wage growth “had been the one fly in the ointment in the last few years. Perkier wages are the final confirmation the labor market is back to normal.”
The latest data “might move the needle for the doubters in the market” about a December Fed hike, he said. “The biggest concern is the effect of tariffs,” though McCarthy said he thinks at this point it may only affect some sectors of the economy.
Here are the highlights of the three most closely-watched components of the report: payrolls, wages and unemployment.
Payrolls
Revisions subtracted a total of 50,000 jobs from payrolls in the previous two months, according to the figures, resulting in a three-month average of 185,000.
The details across industries showed manufacturing payrolls fell by 3,000 in August, breaking an almost yearlong streak of solid gains and missing the median estimate for a 23,000 increase. Construction added 23,000 jobs.