US job growth slows causing rise in unemployment
Data may prompt Federal Reserve to keep interest rates low for a little while longer
US President Barack Obama delivers remarks to supporters as he talks about the economy and to rally support for his current economic policies in Kansas City, Missouri. Photograph: Ed Zurga/EPA
US job growth slowed in July and an unexpected rise in the unemployment rate pointed to some slack in the labour market that could give the Federal Reserve room to keep interest rates low for a while.
Non-farm payrolls increased 209,000 last month after surging by 298,000 in June, the Labor Department said today. Data for May and June were revised to show a total of 15,000 more jobs created than previously reported, showing underlying momentum and taking some of the sting from the report.
US stock index futures pared losses on the report, while the dollar fell to a session low against a basket of currencies. US Treasury debt yields dropped.
“It’s a goldilocks report for an economy that is steadily expanding but not lifting off. It will reinforce for now the Federal Reserve’s commitment to a gradualist policy approach,” said Mohamed El-Erian, chief economic advisor at Allianz in Newport Beach, California.
July marked the sixth straight month that employment has expanded by more than 200,000 jobs, a stretch last seen in 1997.
The one tenth of a percentage point increase in the unemployment rate to 6.2 percent came as more people entered the labor market, a sign of confidence in employment prospects. Average hourly earnings, which are being closely monitored as a potential signal of reduced slack that could prompt the Fed to raise rates, rose only one cent. That left the annual rate of increase at 2.0 per cent, still well below the levels that would make Fed officials nervous.
Fed officials on Wednesday cautioned that “significant” slack remained, signaling patience on the rate front. A separate report from the Commerce Department showed inflation retreating in June.
A price index for consumer spending, excluding food and energy, edged up 0.1 percent after gaining 0.2 per cent in May. The core personal consumption expenditures price index, which is the Fed’s preferred inflation measure, increased 1.5 per cent in the 12 months through June, still below the central bank’s 2 percent target. Most economists look for the first interest rate increase in the second quarter of next year.