Strong US Jobs Report Bolsters Case for Further Fed Tightening
Washington (Aug 5) US employers hired more workers than expected in July and raised their wages, signs of labor market tightness that likely clears the way for the Federal Reserve to announce a plan to start shrinking its massive bond portfolio.
The Labor Department said that nonfarm payrolls increased by 209,000 jobs last month amid broad-based 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 percent, in July after rising 0.2 percent in June. That was the biggest rise in five months. On a year-on-year basis, wages increased 2.5 percent for the fourth straight month.
"The Fed set a low bar for balance sheet normalization to begin in September, and today's number cleared that bar with elan," said Michael Feroli, economist at JPMorgan in New York.
Although the economy is near full employment, wage growth has not been strong in part because many of the jobs being created are in low-wage sectors. Last month, restaurants and bars added 53,100 jobs.
July's monthly increase in earnings could, however, offer Fed policymakers some assurance that inflation will gradually rise to the U.S. central bank's 2 percent target.
Economists expect the Fed will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its next policy meeting in September. The Fed bought these securities to lower interest rates in the wake of the 2007-2009 financial crisis.
Sluggish wage growth and the accompanying benign inflation, however, suggest the Fed will delay raising interest rates again until December. It has increased borrowing costs twice this year and its benchmark overnight interest rate is in a range of 1 percent to 1.25 percent.
The dollar rallied against a basket of currencies on the jobs report, while prices for U.S. Treasuries fell. Stocks on Wall Street were trading slightly higher.
Economists had forecast payrolls increasing by 183,000 jobs and wages rising 0.3 percent in July.
Reuters
