US jobs surge in July as economic outlook brightens

Hirings run strongly for second month in a row, US interest rate rise in the cards in 2016

PUBLISHED : Saturday, 06 August, 2016, 12:36am
UPDATED : Saturday, 06 August, 2016, 1:22am

US employment rose more than expected for the second month in a row in July and wages picked up, bolstering expectations of faster economic growth and raising the probability of a Federal Reserve interest rate increase this year.

Nonfarm payrolls rose by 255,000 jobs after an upwardly revised 292,000 surge in June, with hiring broadly based across the sectors of the economy, the Labor Department said on Friday.

The unemployment rate was unchanged at 4.9 per cent as more people entered the labour market. Highlighting job market strength, average hourly earnings increased a healthy eight cents and workers put in more hours. In addition, 18,000 more jobs were created in May and June than previously reported.

“The July jobs report was everything you could have asked for and more. Provided the strength in jobs is confirmed with other economic data, the Fed will have sufficient reason to hike (rates) this year,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York.

The rate of hiring is more than enough to whittle away at the jobless rate over time and gradually eliminate labour-market slack, a goal of Federal Reserve officials who’ve kept interest rates low to spur growth. The strong employment readings also come as the US heads toward the presidential election, which could give Democrat Hillary Clinton a positive talking point.

“Labour demand is holding up pretty well,” said Jesse Edgerton, an economist at JPMorgan Chase & Co. in New York. “The labour market is firming up. Wages are starting to pick up. It’s a positive for consumer spending. This will reinforce the Fed’s view that improvement in the labour market is likely to continue.”

The median forecast in a Bloomberg survey called for a 180,000 advance. Estimates in the survey ranged from gains of 140,000 to 240,000 after a previously reported 287,000 June increase. Revisions added a total of 18,000 jobs to overall payrolls in the previous two months.

The unemployment rate, which is derived from a separate Labor Department survey of households, was little changed as employment climbed by 420,000, more than making up for the 407,000 increase in the labour force.

“Businesses are still willing to invest in labour and pay higher wages to retain employees. The combination of strong employment and firming wage growth should remain supportive of income and consumer spending,” said Greg Daco, head of US macroeconomics at Oxford Economics in New York.

With the bulk of labour market slack largely absorbed and the economy’s recovery from the 2007-2009 recession showing signs of ageing, payroll gains will probably drift lower over the next 12 months, economists say.

“While a maturing labor market will translate into lower job creation over the next twelve months, reduced labour market slack should provide an offset through stronger wage growth,” Daco said.

The labour force participation rate, which indicates the share of working-age people who are employed or looking for work, increased to 62.8 per cent from 62.7 per cent.

The gain in payrolls was broad-based, including manufacturers, health-care, retailers, temporary-help agencies and leisure and hospitality. Government agencies also took on 38,000 workers, the most since September 2014, reflecting gains at local schools.

The report did come with one caveat. The underemployment rate climbed to 9.7 per cent in July from 9.6 per cent as many of the people entering the workforce had to settle for part-time jobs. The number of people working part-time for economic reasons rose to 5.94 million from 5.84 million. Also, the number of discouraged Americans, those who stopped looking for work because of bleak prospects, rose to a five-month high of 591,000.

Last week’s Commerce Department data showed the economy expanded in the second quarter at a 1.2 per cent annualized rate, less than half the median projection by economists surveyed by Bloomberg. Gross domestic product growth probably will pick up to a 2 per cent rate by year-end, according to Bloomberg survey data.

US Federal Reserve policy makers’ decision last week to leave interest rates unchanged was accompanied by affirmation that risks to the US economy have eased and the job market has continued to tighten -- all suggesting that a boost in borrowing costs at their next gathering September 20-21 remained on the table.