US job growth picked up last month as employers added 207,000 workers to their payrolls, a healthy gain that led Wall Street to increase bets on rate hikes from the Federal Reserve. The unemployment rate held steady at the 5 percent reached in June, the lowest level since September 2001, the Labour Department said on Friday.
"This is a crystal clear indication that the labour markets are very healthy and it reinforces the notion that the economy is growing in a healthy, sustainable way," said Dana Johnson, chief economist at Comerica in Detroit.
The Fed, which has raised the benchmark overnight lending rate at each of its last nine meetings, is widely expected to bump it up another quarter-percentage point to 3.5 percent when officials gather on Tuesday.
"The Fed is going to keep chugging along," said Robert MacIntosh, chief economist at Eaton Vance Management in Boston.
Financial markets see the rate hitting 4 percent by year end, although the jobs report had some betting it could move even higher.
The payrolls gain, spurred on by service-sector hiring, was stronger than expected by economists who had looked for an increase of 183,000 with the jobless rate steady.
Prices for US government bonds fell sharply on the data, pushing yields higher, the dollar strengthened and stock prices fell as markets braced for further Fed interest rate increases. The Bush administration hailed the report as a sign of the economy's vigor. "This shows that the fundamentals of our economy are strong and that we are continuing on a positive path of growth and prosperity," US Treasury Secretary John Snow said in a statement.
While some economists thought the report might be skewed by Hurricane Dennis, which battered the Florida panhandle in mid-July, the department said the storm appeared to have no discernible impact on the figures.
A net upward revision of 42,000 to the combined job count for May and June contributed to the report's solid tenor. US employers added 166,000 workers in June and 126,000 in May.
The pickup in job growth last month pushed this year's average monthly payroll gain to 191,000, a pace economists see as strong enough to slowly tighten the labour market.
The factory sector, which shed 4,000 workers last month, was one of the only weak spots. However, the Labour Department noted that an 11,000-job drop in auto manufacturing reflected larger-than-normal temporary plant shutdowns for retooling.
The report was the latest in a string of strong data and the last significant piece of economic news before Fed policy-makers meet next week.
Average hourly earnings shot up six cents, or 0.4 percent, in July - the biggest rise in a year. However, earnings are up just 2.7 percent over the past 12 months, suggesting wages have yet to become a big inflationary concern.
"As far as the Fed is concerned, payrolls growth is probably just about right - not too hot and not too cold," Paul Ashworth of Capital Economics told clients in a research note.
Job growth was tepid at construction firms, which brought on just 7,000 new workers, but was strong on the service side of the economy.
Retailers added 50,000 workers, the biggest gain in that sector since April 2000. The strong retail hiring in part reflected job growth at automobile dealers coping with a surge of shoppers enticed by special incentives.
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