WASHINGTON • US employers hired more workers than expected in July and raised their wages, signs of labour market tightness that will likely clear the way for the Federal Reserve to announce next month a plan to start shrinking its massive bond portfolio.
The Labour Department yesterday said non-farm payrolls rose by 209,000 last month amid broad gains. June's employment gain was revised up to 231,000 from the previously reported 222,000.
Average hourly earnings increased nine US cents, or 0.3 per cent, in July after rising 0.2 per cent in June. That was the biggest gain in five months. Wages were up 2.5 per cent in the 12 months to July, matching June's gain. Average hourly earnings have been trending lower since surging 2.8 per cent in February.
Lack of strong wage growth is surprising given that the economy is near full employment, but July's monthly increase in earnings could offer some assurance to Fed officials that inflation will gradually rise to its 2 per cent target.
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Economists expect the Fed will announce a plan to start reducing its US$4.5 trillion (S$6.1 trillion) portfolio of Treasury bonds and mortgage-backed securities next month.
Sluggish wage growth and the accompanying benign inflation, however, suggest the US central bank will delay raising interest rates again until December. The Fed has raised rates twice this year, and its benchmark overnight lending rate now stands in a range of 1 per cent to 1.25 per cent.
Wage growth is crucial to sustaining the economic expansion after output increased at a 2.6 per cent annual rate in the second quarter. The unemployment rate dropped one-tenth of a percentage point to 4.3 per cent, matching a 16-year low touched in May.
July's employment gains exceeded the monthly average of 184,000 for this year. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.