Updated from 9 a.m. EDT
The U.S. labor market put in a strong performance last month, generating another 207,000 jobs while holding the unemployment rate steady at 5%. Payroll gains were upwardly revised by a combined 42,000 for May and June, providing more support for economic bulls who see steady growth and more
Economists, on average, expected payrolls to grow by 180,000, with the unemployment rate holding at 5%. July's payroll gain was the biggest in three months and the first one since April to beat economists' estimate.
The Labor Department said average hourly earnings rose by 6 cents, or 0.4%, slightly stronger than expected and the biggest increase in a year. In all, the July report will do little to alter expectations that Fed policymakers will continue raising interest rates at a measured pace.
"This latest report tells the market that the Fed will continue to raise rates by at least 75 basis points through the end of the year," says John Silvia, chief economist at Wachovia. "The data we received from the wage report now reinforces what Greenspan has been saying in his testimonies."
Stocks eased and bond yields rose following the report, as traders responded to its inflationary implications. Recently, the
Dow Jones Industrial Average
was down 24 points to 10,586, while the yield on the 10-year Treasury went from 4.31% to 4.38%.
"We can clearly see job growth accelerating from this latest number and the upward revisions of the last two months," says Paul Mendelsohn, chief investment strategist at Windham Financial Services. "This latest report showed a surge in wage growth, which clearly gives the Fed more reason and more room to raise rates. With this latest report plus all of the recent economic data, we are looking for the 10-year to yield 4 3/4% by the end of the year."
Almost all of the payroll gains occurred in the services sector, including strong growth in retail and professional services. The manufacturing sector shed 4,000 jobs, its second consecutive monthly decline.
The government produced 26,000 new jobs in July, 7,000 of which were in construction.
The unemployment rate remains at its lowest level since September 2001.