Growth chart A lack of wage gainshas been a major blemish on an economy that President Donald Trumphas called the strongest ever — and is currently being boosted byhis tax-cut stimulus. (Photo: Shutterstock)

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American wages unexpectedly climbed in August by themost since the recession ended in 2009 and hiringrose by more than forecast, keeping the Federal Reserve on track tolift interest rates this month and making another hike in Decembermore likely.

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Average hourly earnings for private workers increased2.9 percent from a year earlier, a Labor Department report showedFriday, exceeding all estimates in a Bloomberg survey and themedian projection for 2.7 percent. Nonfarm payrolls rose 201,000from the prior month, topping the median forecast for 190,000 jobs.The unemployment rate was unchanged at 3.9 percent, still near thelowest since the 1960s.

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Related: What hourly workers want, aren't getting in the jobmarket

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Treasury yields and the dollar jumped after the report, whileU.S. stocks opened lower as investors saw the data as encouragingFed Chairman Jerome Powell to keep tightening monetary policybeyond this month.

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A lack of wage gains has been a major blemish on an economy thatPresident Donald Trump has called the strongest ever — and iscurrently being boosted by his tax-cut stimulus. Some investors had speculatedthe Fed would pause after this month given an escalating trade warand turmoil in emerging markets.

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“The labor market looks great,” said Ward McCarthy, chieffinancial economist at Jefferies LLC in New York. Weak wage growth“had been the one fly in the ointment in the last few years.Perkier wages are the final confirmation the labor market is backto normal.”

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The latest data “might move the needle for the doubters in themarket” about a December Fed hike, he said. “The biggest concern isthe effect of tariffs,” though McCarthy said he thinks at thispoint it may only affect some sectors of the economy.

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Here are the highlights of the three most closely watchedcomponents of the report: payrolls, wages and unemployment.

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Payrolls

Revisions subtracted a total of 50,000 jobs from payrolls in theprevious two months, according to the figures, resulting in athree-month average of 185,000.

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The details across industries showed manufacturing payrolls fellby 3,000 in August, breaking an almost yearlong streak of solidgains and missing the median estimate for a 23,000 increase.Construction added 23,000 jobs.

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Service providers increased payrolls by 178,000 workers, athree-month high. Gains were led by education and health servicesat 53,000 jobs, professional and business services with 53,000 andwholesale trade at 22,400.

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Government payrolls decreased by 3,000. Private employment roseby 204,000, compared with a median estimate of 194,000.

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The payroll gain ends a seven-year streak where the firstreading for August has been below the median analyst estimate. TheAugust figure has been revised upward in six of the past sevenyears.

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Wages

Average hourly earnings rose 0.4 percent from the prior monthfollowing a 0.3 percent gain, the report showed. The annual gainfollowed a 2.7 percent advance in July.

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A separate measure, average hourly earnings for production andnon-supervisory workers, increased 2.8 percent from a year earlier,after a 2.7 percent gain.

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The average work week for all private employees was unchanged at34.5 hours in August.

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The lackluster pace of wage gains ahead of the latest data hasbecome a contentious issue for Republicans and Democrats headinginto midterm congressional elections in November. The White Houseissued a report Wednesday arguing that compensation looks betterwhen accounting for factors such as employment benefits, retiringbaby boomers and this year's tax cuts.

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Unemployment

The jobless rate remains well below Fed estimates of levelssustainable in the long run. The latest figure reflects a decreaseof 46,000 unemployed people in August and a 423,000 drop in thenumber of people with jobs.

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That lowered the participation rate, or share of working-agepeople in the labor force, to 62.7 percent from 62.9 percent theprior month. The employment-population ratio, another broad measureof labor-market health that central bankers like to watch, fell to60.3 percent from 60.5 percent.

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Another measure showed diminishing labor-market slack. The U-6,or underemployment rate, fell to 7.4 percent, the lowest since2001, from 7.5 percent. That gauge includes part-time workers who'dprefer a full-time position and people who want a job but aren'tactively looking.

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— With assistance by Chris Middleton, and SophieCaronello

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Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

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