US jobs increase, keeping Fed on track for its third interest rate hike despite slow wage gains

US job growth surged more than expected in June and employers increased hours for workers, signs of labour market strength that could keep the Federal Reserve on course for a third interest rate hike this year despite sluggish wage gains.

Non-farm payrolls jumped by 222,000 jobs last month, driven by hefty gains in health care, government, restaurants and professional and business services sectors, the Labour Department said on Friday.

That was the second biggest payrolls increase this year and beat economists’ expectations for a 179,000 rise. The economy also created 47,000 more jobs in April and May than previously reported. While the unemployment rate rose to 4.4 per cent from a 16-year low of 4.3 per cent in May, that was because more people were looking for work, a sign of confidence in the labour market.

“The continued vitality in the US labour market means that the Fed is on track to begin shrinking its balance sheet in September and to raise rates again in December,” said Nariman Behravesh, chief economist at IHS Markit in Lexington, Massachusetts.

The jobless rate has dropped four-tenths of a percentage point this year and is near the most recent Fed median forecast for 2017. Though the average workweek increased to 34.5 hours from 34.4 hours in May, wage growth remained stubbornly tepid, putting a wrinkle in the otherwise upbeat employment report.

Average hourly earnings increased four cents, or 0.2 per cent, in June after gaining 0.1 per cent in May. That lifted the year-on-year wage increase to 2.5 per cent from 2.4 per cent in May, suggesting some slack still remains in the labour market.