U.S. Economy: Employment Growth Exceeds Forecasts

U.S. Economy: Employment Growth Exceeds Forecasts (Update3)

By Joe Richter

Dec. 8 (Bloomberg) -- Employers in the U.S. added more workers than forecast in November, showing the economy's resilience as housing and manufacturing slump.

The increase of 132,000 followed a gain of 79,000 the prior month that was less than initially estimated, the Labor Department reported today. Hiring accelerated at retailers, restaurants and health-care firms, while manufacturers and homebuilders shed jobs. The jobless rate rose to 4.5 percent from a five-year low of 4.4 percent.

The figures back Federal Reserve Chairman Ben S. Bernanke's assurances that the economy will continue to expand and even pick up next year. Policy makers, who lifted borrowing costs for two years through June, are expected to keep their benchmark interest rate at 5.25 percent next week.

``This is just what the Fed wants to see, and it will keep them even deeper in their seats,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Housing is weakening, but there is enough growth in jobs and incomes to keep consumers moving along.''

Countering some of the optimism, the University of Michigan said consumer confidence waned this month. The university's index of sentiment declined to 90.2, from 92.1 in November. The measure has averaged 87.2 this year.

Economists forecast payrolls to rise by 100,000 last month following a previously reported 92,000 in October, according to the median forecast in a Bloomberg News survey. September job growth was revised to 203,000 from 148,000. The revisions for the prior two months added 42,000 jobs to payrolls.

Fed `On Alert'

``There is nothing in this report that would make the Fed cut rates any time soon,'' said Dean Maki, chief U.S. economist at Barclays Capital in New York. ``They are pleased with the moderate economic growth. The low unemployment rate is likely to keep the Fed on alert for wage pressure.''

After the employment report, traders pared bets on a Fed rate cut at or before its March meeting. The presumed probability of such a move fell to 28 percent from 48 percent yesterday, based on futures prices tied to the benchmark rate on the Chicago Board of Trade.

Treasury notes weakened, pushing the yield on the 10-year note to 4.55 percent, up from 4.48 percent late yesterday. The Dow Jones Industrial Average advanced 29.08, or 0.2 percent, to 12,307.49.

``It's clear that the economy is slowing, and the lower consumer confidence is a reflection of that and what's happening in housing,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``The good job growth we're seeing puts a floor under growth. It prevents things from getting worse.''

Service Industries

Employment in service-producing industries, which include retailers, banks and government agencies, rose 172,000 last month after an increase of 141,000 in October, the report showed. Retailers added 20,400 jobs, the most in a year.

``We continue to think this economy is quite strong, and the 132,000-job creation confirms that,'' said Allan Hubbard, the White House's chief economic adviser, in an interview. The unemployment rate ``is still incredibly low.''

Manufacturers shed 15,000 jobs last month. The manufacturing workweek fell to 41.1 hours from 41.2 in October and overtime fell to 4.2 hours.

Builders eliminated 29,000 jobs, the most in more than three years, after cutting 24,000 jobs in the prior month. Cooling home sales are prompting homebuilders to reduce projects and hire fewer workers. Cutbacks at U.S. automakers are also restraining growth in payrolls.

Pay, Hours Worked

Average weekly hours worked by production workers held at 33.9 hours in November as expected.

Workers' average hourly earnings rose 0.2 percent, or 3 cents, after rising 0.4 percent the previous month. Economists expected a 0.3 percent increase in hourly wages. Earnings were up 4.1 percent from November 2005.

Average weekly earnings rose to $574.27 last month from $573.25 in October.

``To date there is little evidence that the weakness in housing markets is spilling over more broadly to consumer spending or aggregate employment,'' Bernanke said in a Nov. 28 speech. He said growth will pick up again in the coming year, and emphasized that inflation remains his greatest concern.

Labor markets remained ``tight'' in October and November, according to the Fed's regional survey known as the beige book. The Fed held its benchmark lending rate steady for a third straight month in October. Central bankers next meet Dec. 12.

`Slight Reduction'

Business executives aren't expecting a sharp slowdown in growth.

``There will be a slight reduction in the U.S. as compared to this year,'' said Alain Belda, chief executive officer of New York-based Alcoa Inc. in a Dec. 1 interview. ``I do not see a major slowdown'' in demand.

Still, some economists said slower economic growth may be starting to make companies reluctant to hire.

The economy expanded at a 2.2 percent annual rate in the third quarter, the slowest this year. A decline in homebuilding subtracted the most from overall growth in almost a quarter century. Reports last week suggest weakness may be spreading beyond housing.

Manufacturing, which accounts for about 12 percent of the economy, contracted for the first time in more than three years last month as inventories grew and orders slowed, the Institute for Supply Management reported on Dec. 1.

Ford Motor Co., the second-largest U.S. automaker, said last week it will cut an additional 15,000 vehicles from its North American production plan for this quarter after reporting an unexpected decline in November U.S. sales. The Dearborn, Michigan-based company has been cutting jobs and closing plants as it tries to work down swollen inventories.

To contact the reporter on this story: Joe Richter in Washington Jrichter1@bloomberg.net
Last Updated: December 8, 2006 17:31 EST