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Five things to watch in the October jobs report

The U.S. has added an average of 227,000 jobs a month in 2014 and all signs point to another 200,000-plus gain in October. But a sharp uptick in wages is still missing from the labor-market revival, which the economy needs to speed up growth.

Here are five things to watch in the October jobs report due for release Friday morning.

Strong headline number

It would be a bit of shock if the economy doesn’t generate another 200,000 jobs or so in October. Earlier this week, payroll processor ADP said private-sector jobs increased by 230,000 last month. The four-week average of jobless claims fell to a 14-year low. And a survey of U.S. service companies in industries such as health care and retail show employment at a nine-year high.

Wall Street is gearing up for a good number. The U.S. likely added 243,000 jobs in October, according to economists polled by MarketWatch. And the 248,000 and 180,000 gains in September and August are also expected to be revised higher.

Unemployment rate

Economists predict the unemployment rate will remain unchanged at 5.9%, but it’s been falling faster than Wall Street or the Federal Reserve has expected. Another unexpectedly sharp drop would put more pressure on the Fed to raise interest rates earlier than it plans, triggering a spasm in U.S. financial markets. A flat reading would largely be ignored.

Keep an eye on the so-called U6 rate, a broader measure of unemployment that stood at 11.8% in September. That rate needs to come down further to offer more persuasive proof the labor market is as strong as other indicators suggest. The U6 was around 8% before the economy started to crater in late 2007.

Worker pay

Here’s the big one. Hourly wages have grown at a steady 2% annual rate over the past four years, but that’s not enough to kick the economy into overdrive. People are earning more because they are working longer hours, but not because they are getting big pay raises.

Economists predict wages will grow 0.2% in October, keeping the 12-month increase within the 1.9% to 2.2% range that’s prevailed in the past two years.

Simply put, wages need to grow faster for the economy to grow faster. There are signs that’s starting to happen, but the evidence is still thin.

Composition of new jobs

The sharp pickup in hiring in 2014 is obviously quite welcome, but just as important is a gradual shift toward higher paying jobs. Some 60% of the jobs created so far this year pay above the average hourly wage, compared to less than 50% in 2013.

In October, professional jobs probably grew the fastest again and economists project improved gains in manufacturing, education, health care and retail. Only the last category pays below the average national wage.

The long-term unemployed

Wages aren’t rising much, some economists contend, because of an excess supply of labor that businesses can draw upon to keep employee costs down. Although the number of people out of work six months or longer has fallen 28% over the past year, some 3 million can’t find a full-time job. That’s still higher than anytime before the 2007-2009 recession.

Fed Chairwoman Janet Yellen, among others, views the large pool of long-term unemployed as a sign the economy is still not strong enough to absorb the first increase in interest rates since 2006. Yet the Fed will quickly change its tune if the number of long-term unemployed starts to fall more rapidly.

Jeffry Bartash 

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