US payrolls gains beat expectations, wages rise

US employment increased more than expected in July and wages have picked up, according to the Labour Department.
US employment increased more than expected in July and wages have picked up, according to the Labour Department.PHOTO: REUTERS

WASHINGTON (REUTERS) - US employment increased more than expected in July and wages picked up, which should bolster expectations of an acceleration in economic growth and raise the probability of an interest rate hike from the Federal Reserve this year.

Nonfarm payrolls increased by 255,000 jobs last month as hiring rose broadly after an upwardly revised 292,000 surge in June, the Labor Department said on Friday.

The unemployment rate was unchanged at 4.9 percent as more people entered the labor market. Highlighting labor market strength, average hourly wages increased a healthy eight cents. May payrolls were revised up to 24,000 from the previously reported 11,000.

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 per cent.

Last month's strong job 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 second straight month of robust job gains is a boost to an economy after growth averaged a 1.0 per cent annual rate in the last three quarters. After a policy meeting last month, the Fed described the labor market as having "strengthened" and said it appeared it was still tightening.

The US central bank raised interest rates at the end of last year for the first time in nearly a decade, but has held them steady since amid concerns over persistently low inflation. Most economists expect another rate hike in December, though financial markets have almost priced out that possibility.

The 0.3 per cent increase in average hourly earnings left the year-on-year gain at 2.6 per cent.

The payrolls data added to July auto sales in underscoring the economy's sound fundamentals. Economic growth is expected to accelerate to at least a 2.5 percent annualized rate in the second quarter.

But with the bulk of labour market slack largely absorbed and the economy's recovery from the 2007-2009 recession showing signs of aging, payroll gains will probably drift to average between 150,000 and 160,000 jobs per month later this year, economists say.

Manufacturing sector employment increased by 9,000 jobs in July after adding 15,000 positions in June. Construction payrolls rose 14,000 following three consecutive months of declines. While mining shed a further 7,000 jobs in July.

Other details of the employment report showed a rise in the labor force. That raised the participation rate, or the share of working-age Americans who are employed or at least looking for a job, by one-tenth of a percentage point to 62.8 per cent.