Washington — US employers hired more workers than expected in July and raised their wages, signs of labour market tightness that is likely to clear the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio, in September.
The labour department said that nonfarm payrolls increased by 209,000 jobs in July., 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%, in July after rising 0.2% in June. That was the biggest increase in five months. Wages increased 2.5% in the 12 months to July, matching June’s gain.
Average hourly earnings have been trending lower since surging 2.8% 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% target.
Economists expect that the Fed will announce a plan to start reducing its $4.5-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 in 2017, and its benchmark overnight lending rate now stands in a range of 1% to 1.25%. Economists polled by Reuters had forecast payrolls increasing by 183,000 jobs in July and wages rising 0.3%. Wage growth is crucial to sustaining the economic expansion after output increased at a 2.6% annual rate in the second quarter, an acceleration from the January-March period’s pedestrian 1.2% pace.
The unemployment rate dropped one-tenth of a percentage point to 4.3%, matching a 16-year low touched in May. It has declined four-tenths of a percentage point in 2017 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%. 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% in July.
July’s employment gains exceed the monthly average of 184,000 for 2017. The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population.
Republican President Donald Trump, who inherited a strong job market from the Obama administration, has pledged to sharply boost economic growth and further strengthen the labour market by slashing taxes, cutting regulation and boosting infrastructure spending.
But after six months in office, the Trump administration has failed to pass any economic legislation and has yet to articulate plans for tax reform and infrastructure spending as well as most of its planned regulatory roll-backs.
The jobs composition in July mirrored June’s. Manufacturing payrolls increased by 16,000 jobs. Employment in the vehicle sector rose by 1,600 despite slowing sales and bloated inventories that have forced manufacturers to cut back on production.
US vehicle sales fell 6.1% in July from a year ago to a seasonally adjusted rate of 16.73-million units. General Motors and Ford have both said they will cut production in the second half of the year.
Construction firms hired 6,000 workers in July. Retail payrolls increased by 900 in July as hiring by online retailers more than offset job losses at brick-and-mortar stores.
Companies such as major online retailer Amazon are creating jobs at warehouses and distribution centres. This week, Amazon held a series of job fairs to hire about 50,000 workers.
Government payrolls gained 4,000 in July.