By Eric Morath 

WASHINGTON -- Strong hiring and low unemployment are delivering U.S. workers their best pay raises in nearly a decade.

Employers shook off a September slowdown to add 250,000 jobs to their payrolls in October, above monthly averages in recent years, the Labor Department said Friday. With unemployment holding at 3.7%, a 49-year low, and employers competing for scarce workers, wages increased 3.1% from a year earlier, the biggest year-over-year gain for average hourly earnings since 2009.

"It's a huge milestone," Scott Anderson, chief economist at Bank of the West, said of the wage gain. "We've finally gotten unemployment low enough that we're actually getting some traction on wages and salaries. And it looks like we're pulling more people into the labor force as wages rise."

The share of Americans in their prime working years, between 25 and 54, who are working or looking for work rose to the highest rate since 2010 last month, at 82.3%.

President Trump touted the figures in a tweet Friday, just days before midterm elections that will decide control of Congress. "Wages UP! These are incredible numbers," Mr. Trump said.

Employers have added to their payrolls for a record 97 straight months.

Republicans have a robust economy and job market to support their case to retain the House and Senate, though the labor market and broader economy haven't strongly swayed voters in midterm elections in the past.

The president noted October's jobs gain came "despite the hurricanes." The Labor Department said Hurricane Michael, which struck Florida last month, "had no discernible effect" on the latest figures. Sometimes hurricanes lead to temporary layoffs and then a bounce in hiring in industries such as construction. Some economists noted Friday that Hurricane Florence, which struck the Carolinas in September, may have moved some hiring from that month to October. September was the worst month for employment gains in a year.

Friday's report showed average hourly earnings for all private-sector workers increased 5 cents last month to $27.30. October marked the first time since the recession ended more than nine years ago that the closely watched pay gauge rose better than 3% from a year earlier. Wages are rising solidly ahead of the rate of inflation, which is running near 2%.

With relatively few unemployed Americans looking for work, employers are being forced to bid up wages to poach workers or retain the ones they have. That has been happening for higher-skilled workers such as engineers and welders. It is also occurring for relatively lower-skilled jobs such as warehouse workers and home-care aides.

Low-skilled workers are among the biggest beneficiaries of a strong labor market. Weekly wages for high-school dropouts have risen 23.4% since 2010, outpacing wage growth for college graduates, which has been 14.4% since 2010, not adjusted for inflation.

Amazon.com Inc. this week began paying its lowest-earning employees $15 an hour. Other large employers, including Walmart Inc. and Starbucks Corp., have announced similar broad pay increases in recent years.

Jeffery Sanford Jr. is among the workers seeing his pay increase at a faster rate. Four years ago, the Baltimore resident and Army veteran said he was working two near-minimum-wage jobs at restaurants and sleeping in a homeless shelter.

He pursued training to become a security guard and in 2015 landed a $12.60-an-hour job. The 32-year-old has since been promoted several times by his employer, Allied Universal, including to site manager, and to his current role working to win new contracts for the company. He said he earns $21.60 an hour and is hoping to land a higher-paying salaried position soon.

"Things are changing for me," Mr. Sanford said. "I know what kind of work it takes to earn more money, and it's really paying off."

The strength of hiring in October came as a surprise. Forecasters projected 188,000 jobs would be added last month. Many analysts have been expecting hiring to slow as workers become scarcer.

Employment gains were widespread, including large increases for manufacturing and construction. Manufacturing payrolls, for example, expanded 32,000 in October, the biggest monthly increase this year.

Economists at Nomura Securities said that hiring in cyclical, goods-producing industries was "consistent with an economy benefiting from substantial fiscal stimulus." Congress last December cut individual and corporate tax rates and in February agreed to boost government spending.

"Moving into 2019," Nomura said, "we continue to expect hiring activity to slow as fiscal stimulus wanes."

A hiring slowdown wouldn't necessarily mean unemployment will rise. The Federal Reserve expects unemployment to tick down to 3.6% next year and hold at the level into 2020.

For now a strong labor market likely keeps the Fed on track to gradually lift its benchmark interest rate. The Fed raised its federal-funds rate in September to a range between 2% and 2.25%, and most officials signaled they expected to lift rates by another percentage point through next year, with the next move in December.

Better wage growth could give businesses some leeway to raise prices, but workers' paychecks should continue to grow above the rate of inflation, said Dan North, chief economist at Euler Hermes North America.

Wages for nonsupervisors have risen in the past year at a stronger rate than for managers. And weekly wages are increasing at a faster rate because Americans worked more hours last month.

"These are really muscular wage numbers," which should translate into more consumption, Mr. North said.

Wage gains are still soft compared with other periods of similarly low unemployment. In the early 2000s and late 1960s, wages for nonsupervisors, for which more years of data are available, were growing at a 4%-or-better annual pace.

That, in part, reflects that inflation was higher in those periods, but also that worker productivity was growing more rapidly. While productivity has perked up some in the past six months, gains in output per worker have been weak during most of the current expansion.

If individual workers don't produce more, it is difficult for employers to justify pay increases that exceed price increases. That could reflect that firms this decade have often opted to add more workers rather than invest in productivity-improving technology.

Kinestral Technologies Inc., which engineers and manufactures windows that use technology to produce adjustable levels of tint, is hiring. The Hayward, Calif., firm added about six people to its U.S. staff of just more than 100. The firm expects to add about 50 more jobs in the next year.

Finding those workers could be a challenge, said Chief Executive S.B. Cha.

"The market is very tight for good people," he said, and wages are rising rapidly, especially in Silicon Valley. As a hedge against that, Kinestral moved its software-development team to Salt Lake City a few years ago. Mr. Cha said wages there are lower and growing more slowly than in California.

"In Silicon Valley, you have to pay whatever Apple and Google want to pay," he said. "Salt Lake City is becoming more competitive, but people there are looking for a good culture and tend to stay with you longer."

Write to Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

November 02, 2018 16:24 ET (20:24 GMT)