Employers added 248,000 jobs in September, the Labor Department said Friday, trouncing expectations and signaling momentum but still lacking the kind of wage gains needed for a virtuous cycle of consumer spending.
The jobless rate fell to 5.9%, the first time it has been below 6% since 2008. A broader measure of unemployment, which takes into account discouraged workers and those working part-time because they can't find full-time jobs, also slid to a 6-year low.
With hefty upward revisions to the prior two months, job gains have averaged 227,000 per month in 2014, the strongest pace since 1999. There were a few blemishes: The labor force participation rate sank to a fresh 36-year low of 62.7%.
"This is an excellent report," said Mark Zandi, chief economist for Moody's Analytics. "At that pace of job growth, unemployment and underemployment will decline by half a percentage point per annum. That's about as good as it gets.
The breadth of hiring across industries was also encouraging, Zandi said. Construction, business services, and state and local government hiring, especially for teachers, led the way.
"The quality of the job creation is much improved," he said. "At this point, the job creation is from high-paying to low-paying and everything in between.
Hiring remains weighted toward lower-paying sectors like retail and hospitality, though.
Wage growth, which has been missing throughout the economic expansion, remains a no-show. Hourly earnings have just kept pace with inflation for years, holding at about 2% annual growth.
Stocks — which have been under pressure from concerns ranging from global growth, geopolitical issues and Ebola — jumped on the jobs report. The mix of strong hiring and weak wages suggests faster economic growth but no early start to Federal Reserve rate hikes, with bond buys finally ending this month.
Fed Focus On Wages
The Fed has highlighted wages as a key factor holding back other parts of the economy, including housing and consumer spending.
Fed Chair Janet Yellen has said that the Great Recession may have taken an even nastier toll on wages than previously expected. Employers who were unable to cut workers' pay during the downturn may believe there is no need to raise it now, she said.
Joel Naroff, chief economist for Naroff Economic Advisors, disagrees. After years of tepid growth and head fakes thanks to the stop-and-start recovery, businesses may may be behind the curve, he said.
"My belief is that the more pressure is building — and with a 5.9% rate, pressures are building — when they show up, they'll be large," Naroff said. "The longer it takes, the faster it goes.
Full Employment Soon?
Naroff thinks monthly job gains will accelerate and may touch 240,000 to 250,000 in the coming months. That means the U.S. will click into full employment, the lowest jobless rate possible before wage inflation tips into the broader economy, sometime in 2015. That suggests the Fed should stop placing so much emphasis on waiting to see evidence of wage growth before hiking rates, he said.
Policymakers are sharply divided on that issue, and some question Yellen's belief that the economy still needs accommodation. Wage growth is a lagging indicator, Naroff pointed out.
Consumers are also keenly aware of the lack of wage gains.
"Broadly speaking, that's why most people don't feel very good about the economy," Zandi said. "They may have a job, and they judge the economy based on whether they got a pay increase, whether it's keeping pace with inflation, and whether it's bigger than last year.
For now, consumers are feeling confident enough to go out and buy cars. Automakers have seen sales rise to multiyear highs. But that confidence won't boost the housing market until pay rises, Zandi said.
The damage from the Great Recession was so deep that the economy won't reach full employment until 2016, Zandi said. But he added, "All the trend lines in the economy are very good. Growth is sturdy."