Strong US employment report brightens economic outlook
NEW YORK – 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. In addition, 18,000 more jobs were created in May and June than previously reported.
Economists polled by Reuters had forecast payrolls increasing 180,000 in July and the unemployment rate dipping one-tenth of a percentage point to 4.8 percent.
The unemployment rate was unchanged at 4.9 percent as more people entered the labor market.
Highlighting job market strength, average hourly earnings increased a healthy eight cents and are up 2.6 percent year on year, while workers put in more hours.
“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 U.S dollar .DXY rallied against major currencies after the data, while yields rose on U.S. government debt as traders ramped up bets for an eventual Fed interest rate rise.
The signs of labor market strength, particularly the pickup in wage growth, could become a factor in the U.S. presidential election in November, given voter frustrations with an economic expansion that has left many Americans behind.
U.S. Republican presidential nominee Donald Trump plans to lay out his economic vision in a speech on Monday.
FED INTEREST RATE RISE SEEN MORE LIKELY
Last month’s strong jobs 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 U.S. central bank raised interest rates for the first rise in nearly a decade last December, but since then has held rates steady amid concerns over persistently low U.S. inflation and a global economic growth slowdown.
Given lingering global uncertainties and the upcoming U.S. presidential election, most economists expect another interest rate increase only in December, but financial markets are less sure.
After Friday’s data, Fed futures contracts were pricing in about a 46 percent chance of a rate hike by the end of this year, up from about 34 percent.
However, more top Wall Street banks now expect the Federal Reserve to raise U.S. interest rates in 2016 after Friday’s jobs report, a Reuters poll conducted on Friday showed.
Of 21 primary U.S. Treasury dealers who do business directly with the Fed, 13 said the U.S. central bank would raise its target interest rate by a quarter percentage point by the end of the year, compared with 8 of 15 primary dealers in a July 8 poll. –Reuters