US job growth surges, tempering recession fears and pressing Fed

The US unemployment rate fell to 3.5 per cent in July, matching a five-decade low. PHOTO: AFP/GETTY IMAGES

WASHINGTON (BLOOMBERG, NYT, REUTERS) - US employers added more jobs in July than forecast, illustrating rock-solid labour demand that tempers recession fears and suggests the Federal Reserve will press on with steep interest-rate hikes to thwart inflation.

Non-farm payrolls jumped 528,000 last month, beating all estimates, and is the largest increase in five months, Labour Department data showed on Friday (Aug 5). Employment in the prior month was revised up to a 398,000 gain. The unemployment rate fell to 3.5 per cent, matching a five-decade low. Wage growth accelerated and the labour force participation rate eased.

The median estimates in a Bloomberg survey of economists called for a 250,000 payrolls gain and for the jobless rate to hold at 3.6 per cent.

US stock futures turned lower and Treasuries sank after data showed a booming labour market that might prompt the Federal Reserve to raise rates sharply at its next meeting. Contracts on the S&P 500 slid more than 1 per cent and the two-year Treasury yield jumped towards 3.2 per cent.

The report suggests a steady appetite for labour in a number of industries despite growing concerns about an economic downturn. Payrolls increased in accommodation and food services, healthcare and professional and business services.

The July payrolls data may give Fed officials reason to continue their aggressive monetary policy approach against a backdrop of decades-high inflation.

Fed chairman Jerome Powell last week held open the possibility that officials could raise rates by 75 basis points for a third time at their next meeting in September, depending on inflation and economic data between now and then.

"This jobs report is consistent with an inflationary boom," said Mr Neil Dutta, head of economics at Renaissance Macro Research. "The Fed has a lot more work to do and, in an odd way, that the Fed needs to get more aggressive in pushing up rates, makes the hard-landing scenario more likely."

"What we have heard from the various Fed governors this week about it being too early to pivot away from a tightening policy is definitely in place with the jobs report that is 'this hot'," said Mr Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. "It gives the Fed reason to continue to raise rates and that is what got the market on edge."

Most forecasters expect that momentum to slow markedly later in the year, as companies cut payrolls to match lower demand.

"At this stage, things are OK," said Mr James Knightley, chief international economist at ING bank. "Say, December or the early part of next year, that's where we could see much softer numbers."

Ms Amy Glaser, a senior vice-president at the global staffing agency Adecco, said her firm was still struggling to fill hourly jobs, especially in retail and logistics. Employers may not have made those positions attractive enough, and, increasingly, may do without them.

"I think we do have a gap in the jobs that are available and the desire to do those jobs," she said.

"We know there are tens of thousands of warehouse jobs out there, but standing on your feet for 10 hours a day isn't everyone's cup of tea."

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