U.S. Economy: Payrolls Increase More Than Forecast (Update3)

By Joe Richter


Dec. 7 (Bloomberg) -- Employers in the U.S. hired more workers than forecast in November, lessening pressure on the Federal Reserve to cut interest rates by half a point next week.

Payrolls rose by 94,000 after an increase of 170,000 in October, the Labor Department said today in Washington. The jobless rate remained at 4.7 percent for the third month in a row. A private report showed consumer confidence weakened to the lowest in more than two years this month.

Jobs proved to be one of the few bright spots in a year when home prices plunged the most in at least four decades, energy costs hit a record and mortgage-bond losses roiled financial markets. Gains in wages and employment may help prop up spending as the economy struggles to avoid its first recession since 2001.

``It buys the economy time and allows the Fed to lower rates without panicking,'' said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, who forecast payrolls would rise by 90,000. ``The economy is slowing down in the fourth quarter, but not so rapidly that you're going to have a big down-draft in consumer spending.''

Treasuries fell, sending yields on 10-year notes to 4.11 percent at 4:08 p.m. in New York, from 4.01 percent late yesterday. Yields reached 3.79 percent last week as concern about mounting losses on securities linked to subprime mortgages spurred investors toward the perceived haven of government debt. The Dow Jones Industrial Average was little changed at 13,625.58.

`Sigh of Relief'

``Once again, as markets were anticipating the economy falling off a cliff, it isn't,'' said Mickey Levy, chief economist at Bank of America Corp. in New York. ``I'm sure when the number printed, the Fed had a sigh of relief that it wasn't a disastrous number.''

U.S. Treasury Secretary Henry Paulson said in an interview today that the U.S. job market reflects a ``sound economy.''

Google Inc., Rockwell Automation Inc. and General Electric Co. supplier TPI Composites Inc. are among companies adding to payrolls. Record demand for U.S. goods and services from buyers abroad has helped buttress employment.

The economy has created 1.3 million jobs so far this year, equivalent to a monthly average of 118,000, compared with 185,000 in 2006 and 133,000 over the past five years.

Economists had forecast payrolls would rise by 80,000, according to the median of 82 estimates, compared with an originally reported gain of 166,000 in October. Predictions ranged from a loss of 5,000 to a 195,000 gain.

Rate Cut

Fed Chairman Ben S. Bernanke and other policy makers highlighted the importance of the report in the run-up to their Dec. 11 meeting, when economists anticipate a quarter-point reduction in the target rate for overnight loans between banks. Futures prices showed the probability of a half-point move fell to 26 percent, from 36 percent yesterday.

The Reuters/University of Michigan preliminary index of consumer sentiment dropped to 74.5, lower than forecast, from 76.1 last month, as fuel costs jumped and home values dropped.

Consumers face ``headwinds'' from reduced access to credit, higher gasoline prices and falling home values, Bernanke said last week. The number of Americans who fell behind on their mortgage payments rose to a 20-year high in the third quarter as borrowers were unable to refinance or sell their homes, a report yesterday from the Mortgage Bankers Association showed.

Merrill Lynch & Co. analysts advised selling American Express Co., Capital One Financial Corp. and Discover Financial Services after predicting a consumer recession.

Monthly Revisions

Labor Department revisions to September and October figures brought job growth for those two months to 214,000, or 48,000 fewer than the government had estimated a month ago.

Estimates for unemployment ranged from 4.7 percent to 4.8 percent. The rate has been rising since reaching a five-year low of 4.4 percent in March.

The figures show a less robust job market than depicted by a private report earlier this week. Data compiled by ADP Employer Services showed companies hired 189,000 in November. The ADP figures include only private employment and don't take into account hiring by government agencies.

Service industries, which include banks, insurance companies, restaurants and retailers, added 127,000 workers last month after increasing payrolls by 192,000 in October.

Retailers added 24,200 jobs, the first increase in four months, after cutting 15,000 jobs in October.

Google, owner of the most-popular Internet search engine, said in October that third-quarter profit jumped more than analysts estimated. The Mountain View, California-based company added 2,130 employees in the quarter, bringing its total to 15,916.

Factory Jobs

Factory payrolls decreased by 11,000 after falling 15,000 a month earlier. Economists had forecast a drop of 15,000. Builders hired 24,000 fewer workers in November, the fifth month of declining construction payrolls.

Midland, Michigan-based Dow Chemical Co., the largest U.S. chemical maker, said this week it will shut a number of plants around the world to cut costs, eliminating about 1,000 jobs. The closures include automotive sealant units in North America.

Not all factories are cutting back. GE, the biggest wind- turbine maker in the U.S., said last month that supplier TPI Composites Inc. plans to build a factory in Newton, Iowa, to expand capacity for making blades, adding 500 jobs within three years.

Improving demand from abroad is helping others. Rockwell, the world's largest company focused solely on factory controls, said last month that overseas sales will rise to the highest level ever this fiscal year. The Milwaukee-based company is dealing with a shortage of qualified engineers by training current employees and recent college graduates.

Government Payrolls

Government payrolls increased by 30,000 during the month after gaining 38,000 in October.

Hourly wages rose 8 cents, or 0.5 percent, on average to $17.63 in November and were up 3.8 percent from a year earlier. Economists had expected a 0.3 percent increase for the month and 3.8 percent for the 12-month period.

Average weekly hours worked by production workers held at 33.8 for a fifth month. Average weekly earnings rose to $595.89 last month from $593.19 the prior month.

Consumer spending stalled in October after adjusting for inflation, the weakest performance in seven months, according to figures from the Commerce Department.

General Motors Corp. and Ford Motor Co., bracing for sales declines to continue into 2008, said this week they'll trim production in the first quarter.