Updated Nov. 4, 2016 6:54 p.m. ET
A tightening job market is delivering the strongest wage growth for U.S. workers since the recession, likely keeping the Federal Reserve on track to raise interest rates next month.
Employers added 161,000 nonfarm jobs in October, with upward revisions to the two prior months bolstering the recent trend of job gains, the Labor Department said Friday. The unemployment rate ticked down to 4.9% owing to a dip in the number of people participating in the workforce.
The highlight of Friday’s report, however, was a 2.8% year-over-year jump in average hourly earnings for private-sector workers, the largest annual rise since June 2009.
“It takes time for a tight labor market to manifest in strong wage gains,” said Nariman Behravesh, chief economist at data and analytics firm IHS Markit. “But now we’re seeing it, and I’m pretty confident that going forward we’ll see pretty decent wage growth.”
The jobs report was the last major reading on the health of the U.S. economy before Election Day. But coming just four days before the election and after millions of votes already have been cast, it will likely have a muted impact on the course of the campaign.
Democratic presidential nominee Hillary Clinton called the report “good news” at an appearance in Pittsburgh, adding that “our economy is poised to really take off and thrive.”
Republican candidate Donald Trump told a rally in New Hampshire that the jobs report was “terrible,” pointing to last month’s rise in the number of people not in the workforce. He called the unemployment rate a “phony” number.
The Fed signaled this week it was moving toward a rate increase at its Dec. 13-14 policy meeting, an intention likely reinforced by October’s labor-market data including the strong wage growth. Chairwoman Janet Yellen has said she expects worker pay will rise as the labor market tightens and employers compete to hire and retain employees.
Signs of a firming job market would reinforce the Fed’s expectation that long-sluggish inflation is headed back toward the central bank’s 2% annual target.
“For me, there is a relatively high bar at least in pure economic terms, a relatively high bar to not moving in December,” Federal Reserve Bank of Atlanta President Dennis Lockhart told reporters Friday in Orlando. But, mentioning the election, he said that “there are other things that go on in the world that can give pause, and I don’t completely rule those out.”
Mr. Behravesh said there was “a very high likelihood that the Fed will hike in December—unless there’s some stock-market convulsion around the election.”
The stronger economy and tightening job market are on display at CAD Signs in Hackensack, N.J., which has hired eight people this year—bringing its total to 45—and is looking to add three more. “A lot of new companies are opening up new stores in this area, a lot of rebranding,” said President Alex Galeano. “That brings us a lot of business.”
He said as his sign company has expanded, he has seen hiring become more competitive. He raised starting pay to $12 an hour from $10, beefed up benefits and started offering raises every six months to staff going through the firm’s two-year training program.
“We are constantly under pressure to raise salaries for our guys, to make sure they stay with the company,” Mr. Galeano said. “You have to. Otherwise, you lose the good employees you already trained.”
A stronger labor market is benefiting job seekers, too. Greg Belscher of Sandwich, Mass., was a Sports Authority store manager when the bankrupt chain liquidated its remaining locations in July. “Losing your job to a bankruptcy that you had no control over, and certainly did not go well, was a really, really traumatic process,” he said.
But after a few months of unemployment, the 61-year-old on Monday started a new job at another retail chain where he is training to become a store manager. He said he is “quite content” with the pay and benefits in his new job. “I believe that I am lucky,” Mr. Belscher said.
Hiring over the past three months averaged 176,000, above the level many economists believe is necessary to keep pace with population growth. Nonfarm payroll growth has averaged 181,000 a month so far in 2016, decelerating from the 2015 pace of 229,000 a month.
The unemployment rate has held at or below 5% for 13 straight months, pinned in place by a rise in labor-force participation over that period, despite last month’s downtick in the size of the workforce. The participation rate in October, 62.8%, was down from 62.9% in September but up from 62.5% a year earlier.
A broader measure of joblessness and underemployment, which includes people in part-time jobs because they can’t find full-time work, also declined last month, to 9.5%, its lowest level since April 2008.
Job gains were uneven last month. Employment in goods-producing industries was unchanged from September while private-sector service firms added 142,000 positions and public payrolls rose by 19,000.
For decades, U.S. manufacturing employment has declined while service sectors such as health care have grown in scale and importance. In October, manufacturers shed 9,000 positions from the prior month and health-care payrolls rose by 30,500.
Columbus, Ohio-based Safelite Group on Oct. 10 closed a windshield factory in Enfield, N.C., that employed 210 workers. Chief Executive Tom Feeney said, for the first time since the company was founded in 1947, it no longer manufactures at least some of its own parts. But it is hiring more service technicians and other employees as it focuses on providing automotive glass repair and replacement services.
“Today, we are 100% service- and solution-based,” Mr. Feeney said. “We’re in growth mode and we’re adding people.”
Hurricane Matthew, which battered the southeastern U.S. last month, may have skewed some figures in Friday’s report. The Labor Department noted that the storm hit during a part of the month when its surveys of households and businesses generate estimates for payroll employment and the jobless rate. Some 238,000 employed people didn’t work last month due to bad weather, the agency reported, more than five times the October average of 44,000 over the prior decade.
—Michael S. Derby contributed to this article.
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