U.S. job growth cools, unemployment rate rises

Fri Aug 1, 2014 5:47pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth slowed a bit in July and the unemployment rate unexpectedly rose, pointing to slack in the labor market that could give the Federal Reserve room to keep interest rates low for a while.

Nonfarm payrolls increased 209,000 last month after surging by 298,000 in June, the Labor Department said on Friday. Economists had expected a 233,000 job gain.

Although job growth was below expectations, July marked the sixth straight month employment expanded by more than 200,000, a signal of strength last seen in 1997. In addition, data for May and June was revised to show 15,000 more jobs created than previously reported.

The one tenth of a percentage point increase in the unemployment rate to 6.2 percent came as more people entered the labor market, an indication of confidence in job prospects.

"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.

U.S. Treasury debt prices rose as traders trimmed bets the Fed would push rates up in the first half of next year, with the liftoff date predicted by futures contracts moving to July from June. A Reuters poll of top bond firms similarly found economists predicting a move in the second half of 2015. [FED/R]

U.S. stocks briefly gained as the prospect of continued low rates soothed investors after a sharp sell-off on Thursday, but ended down on persisting worries over Argentina's debt default. The dollar fell against a basket of currencies.

The report showed average hourly earnings, which are being monitored as an early warning sign of inflation pressures, rose only one cent. That left the annual growth rate at 2.0 percent, well below levels that would make the Fed nervous. Some other measures that have shown wages rising more briskly have some economists worried the central bank could fall behind the curve.   Continued...

Workers on the assembly line work on installing the motherboard on the reverse side of a 32-inch TV at Element Electronics in Winnsboro, South Carolina May 29, 2014.REUTERS/Chris Keane