US job growth surges, tempering recession fears and pressing Fed

US employers added more than double the number of jobs forecast, illustrating rock-solid labour demand that tempers recession fears and suggesting that the Federal Reserve will press on with steep interest rate hikes to thwart inflation.

Nonfarm payrolls jumped 528,000 in July, a broad advance that beat all estimates and was the largest in 5 months, Labor 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 5-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. Treasury yields surged, S&P 500 index futures plunged and the US dollar rose sharply.

The report suggests a voracious appetite for workers, particularly in the service sector that has been struggling with labour shortages. The gain in payrolls was broad, led by increases in accommodation and food services, healthcare and professional and business services.

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

“As tighter monetary policy bites, the labour market is likely to slow in the coming months, but for now, the labour market remains red hot, hopefully assuaging recession fears,” said Daniel Zhao, senior economist at Glassdoor.

The figures are welcome news for US President Joe Biden, whose approval ratings have been weak ahead of midterm elections.

Average hourly earnings also surprised to the upside, rising 0.5 per cent in July after an upwardly revised 0.4 per cent gain in the prior month. From a year earlier, earnings advanced 5.2 per ent for a second month. An elevated pace of earnings growth suggests inflationary pressures will persist, a concern for Fed policymakers.

“Certainly, 75 basis points will be on the table for the for the next meeting,” Randall Kroszner, an economics professor at the University of Chicago Booth School of Business and a former governor at the central bank, said on Bloomberg Television. “The thing is not only the strength of the labour market, but it is also the significant increase in wages higher than expected upward revisions.”

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US weekly jobless claims increase; layoffs fall in July

The labour force participation rate — the share of the population that is working or looking for work — fell to 62.1 per cent, the lowest this year and driven by a sharp drop among teenagers. The rate for workers ages 25-54, however, ticked higher. BLOOMBERG