WASHINGTON (REUTERS) - US employers hired more workers than expected in July and raised their wages, signs of labour market tightness that likely clears the way for the Federal Reserve to announce next month a plan to start shrinking its massive bond portfolio.
The Labor Department said that non-farm payrolls increased by 209,000 jobs 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 cents, or 0.3 per cent, in July after rising 0.2 per cent in June. That was the biggest increase in five months. Wages increased 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. 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 in September.
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, an acceleration from the January-March period's pedestrian 1.2 per cent pace. The unemployment rate dropped one-tenth of a percentage point to 4.3 per cent, matching a 16-year low touched in May. It has declined four-tenths of a percentage point this year and matches the most recent Fed median forecast for 2017.
July's decline in the jobless rate came even as more people entered the labour force. The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose one-tenth of a percentage point to 62.9 per cent.
Still, some slack remains in the labour market, which is restraining wage growth. A broad measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, was unchanged at 8.6 per cent last month.
July's employment gains exceed 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.