Strong jobs report augurs well, but slow pay growth hurts spending today

Reading the November employment report — 211,000 jobs created, topping estimates by about 11,000, and an unchanged 5 percent jobless rate — analysts were quick to predict one thing, in particular: The Federal Reserve is almost certain to raise interest rates when it meets next week.
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Reading the November employment report — 211,000 jobs created, topping estimates by about 11,000, and an unchanged 5 percent jobless rate — analysts were quick to predict one thing, in particular: The Federal Reserve is almost certain to raise interest rates when it meets next week.

“This is a green light from our perspective,” Phil Orlando, chief equity strategist at Federated Investors, told the New York Times.

What do the November numbers mean, though for consumer spending — for people considering buying boats or boat owners with repair or improvement needs? The economy has been adding 210,000 jobs a month this year, the Times noted, and the November gain compares well with the average monthly increase of 199,000 in 2013 and 260,000 in 2014.

Yet economic growth is still constrained, and a significant reason is that workers’ wage gains are barely keeping up with inflation. The Labor Department said in its jobs report that average hourly earnings for all employees on private nonfarm payrolls rose by 4 cents in November, to $25.25, after a 9-cent gain in October.

Average hourly earnings have risen by 2.3 percent this year. In November, average hourly earnings of private-sector production and nonsupervisory employees were $21.19 — little changed.

A Forbes report about prospective holiday season spending said the most recently available personal income and spending data point to less overall income growth, compared with a year earlier, and other things that suggest a less robust year-over-year increase in spending from 2014.

Forbes said the nominal cumulative growth of wage and salary income for the year to date is 3.8 percent, compared with 4.6 percent by October of last year and 4.8 percent through the first 10 months of 2012 (2013 was skewed down because January income was pulled into December).

Forbes said the slower pace of salary growth particularly crimps spending because the percentage of wage income spent on items other than food, energy, housing, utilities and health care services is already bouncing up against the 85 percent ceiling.

On Monday the Federal Reserve said consumer credit rose in October, but at a slower pace than during the preceding month. Credit increased 5.5 percent in October, a seasonally adjusted annual rate of $15.9 billion. MarketWatch said the growth was a sharp deceleration from September’s gain of $28.6 billion, or 9.9 percent, which was the fastest pace since April of 2014.

Nearly all of October’s slowdown in credit growth came in credit-card borrowing, which grew just 0.2 percent after an 8.7 percent rise the previous month, MarketWatch said. This is the smallest gain since February. Nonrevolving credit, which includes auto and student loans, grew 7.4 percent in October after a 10.3 percent jump in September.

This recovery has generally been quite poor in generating growth in real disposable income, which is up 13 percent since the Great Recession ended (77 quarters), compared with 18.6 percent during the prior and shorter recovery, 21.3 percent in the first 77 quarters of the 1990s expansion and 29.7 percent in the 1980s expansion after 77 quarters, Forbes said.

The story concluded that there has been enough income growth to support more holiday spending this year than last, but the growth should be lower because the pace of income growth also is slower.

On Friday, economy watchers will get a look at the retail sales report for November. Analysts expect a gain of 0.2 percent, up slightly from 0.1 percent the previous month.

Also on Friday, the University of Michigan will deliver its preliminary Consumer Sentiment Index for December. It is forecast to rise to 92.0 from 91.3 at the end of November.

Together they will indicate the path that the remainder of the holiday season will take and indicate how much momentum the economy is likely to generate for the start of the new year.

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