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August 6, 2016

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US firms raise hiring and wages increase in July

Source: Agencies | August 6, 2016, Saturday | Print Edition

US employment increased more than expected in July and wages picked up, which should bolster expectations of an acceleration in economic growth and raise the probability of a Federal Reserve interest rate hike this year.

Nonfarm payrolls rose by 255,000 jobs last month as hiring increased broadly after an upwardly revised 292,000 surge in June, the Labor Department said yesterday.

The unemployment rate was unchanged at 4.9 percent as more people entered the labor market. Highlighting labor market strength, average hourly wages rose a healthy eight cents and workers put in more hours. May's payrolls were revised up to 24,000 from the previously reported 11,000.

"It looks like a pretty strong report overall. It shows the economy from a labor perspective is heading in the direction that the Fed wants. It gives the Fed some support for those looking for an increase in rates by the end of the year," said Doug Duncan, chief economist at Fannie Mae in Washington.

The dollar jumped against the euro and the yen after the data, while prices for US government debt fell. US stock index futures extended gains.

Economists polled by Reuters had forecast payrolls increasing 180,000 in July and the jobless rate dipping one-tenth of a percentage point to 4.8 percent.

Last month's strong job growth should reinforce the Fed's confidence in a labor market that officials view as at or near full employment. Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with population growth.

The second straight month of robust job gains is a boost to the economy after growth averaged a tepid 1 percent annual rate in the last three quarters. After a policy meeting last month, the Fed said the labor market had "strengthened" and said it appeared it was still tightening.

The US central bank raised interest rates at the end of last year, its first hike in nearly a decade, but since then has held them steady amid concerns over persistently low US inflation and a global growth slowdown.

Most economists expect another rate rise in December.

After yesterday's data, futures contracts showed traders still saw less than even odds of a rate hike this year, but close to even odds of such a move by early 2017. Ahead of the employment report, traders saw little chance of a rate rise until well into next year.

The signs of labor market strength, particularly the pickup in wage growth, could ease voter frustrations with an economic expansion that has left many Americans behind. That discontent has helped fuel support for Republican presidential nominee Donald Trump, who plans to lay out his economic vision in a speech on Monday.

Trump adviser David Malpass yesterday pointed to the still historically low level of participation in the labor force in arguing policies needed to change. "What you've got is a lot of people being left out of the upturn," he told CNBC.

The 0.3 percent gain in average hourly earnings last month left the annual gain at 2.6 percent.

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