WASHINGTON (AP) — U.S. hiring roared back in October after two weak months, with employers adding a robust 271,000 jobs and likely setting the stage for the Federal Reserve to raise interest rates next month.
The unemployment rate dipped to a fresh seven-year low of 5 percent from 5.1 percent.
The burst of hiring, the most since December, filled jobs across a range of industries as companies shrugged off slow overseas growth and a struggling manufacturing sector. Significant job gains occurred in construction, health care and retail.
Friday’s report from the government suggested that the U.S. economy is rebounding after a worrisome summer and is continuing to outshine other major economies. During August and September, U.S. hiring had flagged amid financial turmoil in China and faltering growth in Europe and emerging markets.
Even so, American consumers have kept spending at a healthy pace, supporting strong job growth even as factory payrolls were flat last month and oil and gas drillers cut jobs.
Soon after Friday’s report was released, the prospect of higher interest rates drove down financial markets. By late morning, stocks had fallen modestly. And the yield on the benchmark 10-year Treasury note had surged to 2.33 percent from 2.23 percent Thursday, suggesting that investors see a greater likelihood of a Fed rate hike.
After a prolonged period of relatively stagnant pay raises for many Americans, last month’s robust hiring also raised wages 9 cents to $25.20. That is 2.5 percent higher than 12 months ago, the sharpest year-over-year gain since July 2009. That is comfortably above inflation, which was been flat in the past year.
The solid pay gains should fuel more consumer spending in coming months, which, in turn, could support further hiring.
“These are very strong numbers and likely to continue,” said Carl Tannenbaum, chief economist at Northern Trust.
Retailers added nearly 44,000 jobs in October, the most since November and a sign that they anticipate healthy sales for the holiday shopping season. Hotels and restaurants added 41,000.
Matt Friedman, chief executive of the Wing Zone restaurant chain, said he thinks lower gas prices are encouraging more people to eat out and boosting sales at his company’s 93 U.S. sites. Company sales have grown 6 percent this year from 2014. Wing Zone is adding three jobs to its 18-employee headquarters staff and expects to open 15 stores this year and 19 next year.
“People are spending more money,” Friedman said. “Fuel prices have a big impact.”
During October, many higher-paying sectors enjoyed healthy gains, notably professional and business services, which includes lawyers, architects and engineers. That sector added 78,000 positions, the most in nearly a year.
Some economists cautioned that the explosiveness of October’s job growth was likely in part a bounce back from the tepid gains in August and September, when fears about the global economy had led some employers to hold back.
“We see some makeup from hiring that was put off when the economy was hesitant in the late summer and early autumn,” said Patrick O’Keefe, director of economic research at CohnReznick.
Any job gain above roughly 150,000 was expected to keep Fed policymakers on track to raise rates from record lows at their Dec. 15-16 meeting, though the Fed will have one more jobs report to digest before then.
Chair Janet Yellen and other leading Fed officials have said that the economy is generally healthy and that the December meeting is a “live possibility” for a rate hike.
“This data tips the scales toward a rate hike in December but more importantly is a sign that our economy may have more punch than we thought,” said Tara Sinclair, chief economist for job site Indeed.com.
Consistently strong hiring would continue to reduce the unemployment rate. The economy typically needs only about 100,000 jobs a month to keep unemployment from rising. That figure has fallen in recent years as an aging population and increasing retirements by baby boomers have slowed the growth of the U.S. workforce.
Other data show that consumers have kept spending in part because of lower gas prices and a recovery in the stock market. The economy grew at just a 1.5 percent annual rate in the July-September quarter. The slowdown occurred mostly because businesses cut back on their stockpiles and exports weakened.
Still, Americans boosted their spending at a healthy 3.2 percent annual pace. That spending has encouraged many services firms, which make up roughly 80 percent of the economy, to step up hiring.
Overall, services companies expanded in October at the fastest pace in three months, according to a private survey by the Institute for Supply Management. That was in sharp contrast to the ISM’s survey of manufacturing firms, which barely grew in October.