By Jason Lange
WASHINGTON (Reuters) - U.S. employers ramped up hiring in September and the jobless rate fell to a six-year low, bolstering bets the Federal Reserve will hike interest rates in mid-2015.
Friday's report on employment is the most significant gauge of the economy's health ahead of Nov. 4 congressional elections.
While President Barack Obama's message of an improving economy has been hampered by weakness in wages that persisted through last month, the data nevertheless underscored the strides the labor market has made this year.
U.S. non-farm payrolls rose by 248,000 last month and the jobless rate fell two-tenths of a point to 5.9 percent, the lowest since July 2008, the Labor Department said.
"Today's jobs report shows, at long last, what employment growth looks like in a balanced economic expansion," said Robert Shapiro, an economist at Sonecon.
The data was generally stronger than Wall Street analysts had anticipated, and investors doubled down on bets the Fed will raise interest rates in mid-2015. The central bank has kept benchmark rates near zero since 2008 to encourage investment and hiring.
Most of Wall Street's top bond firms still see the Federal Reserve starting to raise interest rates no later than June of next year and said the bond market was under-pricing the risk that the U.S. central bank may move more aggressively once it starts tightening policy, a Reuters survey showed on Friday.
Still, analysts noted the report bore a large caveat in the form of persistently stagnant wages. Average hourly earnings actually slipped a penny last month.
While weak wage growth is keeping Fed policymakers cautious about the timing of their first rate hike, the pace of hiring has stepped up significantly this year. The gain in payrolls over the last six months was the strongest for any six-month period since before the 2007-09 recession.
In a further sign of strength, 69,000 more jobs were created in July and August than previously estimated.
U.S. stocks rose and yields on U.S. government debt moved up, while the dollar continued a rally that has been in place for weeks.
The employment gains last month were broad-based.
Factories payrolls, which had fallen in August, expanded by 4,000 workers. The retail sector added 35,300 jobs, a big bounce back that the government said reflected an end to employment disruptions at a grocery chain in New England.
Construction and healthcare payrolls also notched solid gains.
There were some downsides, even outside the weakness in wages.
Notably, part of the decline in the unemployment rate was because workers left the labor force. The share of the population with jobs or hunting for one fell to 62.7 percent, its lowest level since 1978.
That rate has declined in recent years as more workers have retired and as people have given up job hunts due to a weak economy.
Still, a measure of unemployment that partially takes into account worker discouragement fell to 11.8 percent, its lowest level since October 2008.
The number of people who held part-time jobs but wanted full-time work declined slightly to 7.1 million, a sign of slow progress that will be eyed closely by Fed officials as they seek to gauge how much slack remains in the labor market.
In a sign the economy's expansion is moderating from the second quarter's torrid pace, a separate report showed growth in the U.S. services sector eased in September.
Most economists see the economy growing at around a 3 percent annual rate in the third quarter, down from the 4.6 percent rate notched in the April-June quarter but still well above the average over the last two years of 2.2 percent.
Recent signs of vigor in the economy, however, may be insufficient for the Fed to initiate an early rate increase.
Over the past 12 months, hourly earnings were up only 2.0 percent, in line with what has been seen over the past few years and a slight deceleration from August.
"It was a good report but I don't think it changes the Fed dynamics," said Kim Rupert, a managing director at Action Economics in San Francisco. "I still think the first rate hike is maybe mid-year."
In a third report, the Commerce Department said the U.S. trade gap unexpectedly narrowed in August to its smallest level in seven months on an increase in exports, which led some economists to raise their growth forecasts.
(Reporting by Jason Lange; Additional reporting by Herb Lash and Michael Connor in New York; Editing by Andrea Ricci and Meredith Mazzilli)