Improving US jobs market bolsters case for Fed rate hike – Reuters


WASHINGTON U.S. employment rose at a solid clip in July and wages rebounded after a surprise stall in the prior month, signs of an improving economy that could open the door wider to a Federal Reserve interest rate hike in September.

Nonfarm payrolls increased 215,000 last month as a pickup in construction and manufacturing jobs offset further declines in the mining sector, the Labor Department said on Friday. The unemployment rate held at a seven-year low of 5.3 percent.

Payrolls data for May and June were revised to show 14,000 more jobs created than previously reported. In addition, the average workweek increased to 34.6 hours, the highest since February, from 34.5 hours in June.

“If you thought that the Fed was going to go in September, this report would suit that thematic nicely. I don’t think anything has changed in that regard. I think it’s another step toward the eventual lift-off,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

U.S. stock index futures and prices for shorter-dated U.S. Treasuries were trading lower after the data. The dollar rose to a two-month high against the yen and firmed versus the euro. The swaps market was pricing in a 52 percent chance of a September rate hike, up from 47 percent before the jobs data.

Though hiring has slowed from last year’s robust pace, it remains at double the rate needed to keep up with population growth. The Fed last month upgraded its assessment of the labor market, describing it as continuing to “improve, with solid job gains and declining unemployment.”

Average hourly earnings increased five cents, or 0.2 percent, last month after being flat in June. That put them 2.1 percent above the year-ago level, but well shy of the 3.5 percent growth rate economists associate with full employment.

Still, the gain supports views that a sharp slowdown in compensation growth in the second quarter and consumer spending in June were temporary. Economists had forecast nonfarm payrolls increasing 223,000 last month and the unemployment rate holding steady at 5.3 percent.

Wage growth has been disappointingly slow. But tightening labor market conditions and decisions by several state and local governments to raise their minimum wage have fueled expectations of a pickup.

In addition, a number of retailers, including Walmart, the nation’s largest private employer, Target and TJX Cos have increased pay for hourly workers.

NEARING FULL EMPLOYMENT

The jobless rate is near the 5.0 percent to 5.2 percent range most Fed officials think is consistent with a steady but low level of inflation.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.4 percent last month, the lowest since June 2008, from 10.5 percent in June.

But the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, held at a more than 37-1/2-year low of 62.6 percent.

The fairly healthy employment report added to robust July automobile sales and service industries data in suggesting the economy continues to gather momentum after growing at a 2.3 percent annual rate in the second quarter.

Employment gains in July were concentrated in service industries. At the same time, construction payrolls rose 6,000 thanks to a strengthening housing market, after being unchanged in June. Factory payrolls increased 15,000 as some automakers have decided to forgo a usual summer plant shutdown for retooling, after rising 2,000 in June.

More layoffs in the energy sector, which is grappling with last year’s sharp decline in crude oil prices, were a drag on mining payrolls, which shed 4,000 jobs in July. The mining sector has lost 78,000 jobs since December.

Oilfield giants Schlumberger and Halliburton and many others in the oil and gas industry have announced thousands of job cuts in the past few months.

(Reporting by Lucia Mutikani; Additional reporting by David Gaffen in New York; Editing by Clive McKeef and Paul Simao)

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