Fed rate hike seen with steady July jobs growth
Based on the July jobs data, the United States may be headed for an interest rate hike, a sign the economy is in good health.
Last month, 215,000 jobs were created, according to the Labor Department, giving theFederal Reserve one reason to raise key interest rates. Economists had expected 216,000 new jobs, but CNN says a job growth above 200,000 is still considered solid.
Employment gains were broad-based, coming from healthcare, retail, professional and technical services like computer systems design, manufacturing, and construction. New jobs were also generated from restaurants and bars. Growth in these sectors was attributed to a surge in consumer demand that prompted businesses to recruit more staff.
The jobless rate stayed the same at 5.3%, its lowest in more than seven years. At the pace jobs are growing, economists say unemployment rate may fall below 5% by yearend.
"Job growth is quite strong," Jim O'Sullivan, chief economist at High-Frequency Economics, told CNN. "This pace of employment growth is clearly strong enough to keep the unemployment rate trending down."
While new jobs were being created, wages almost stayed the same. Average weekly earnings in July rose only 2.1% from a year earlier, little changed from 2.0% a month before. CNN reports this is why many Americans don't feel their lives have changed since the 2008 financial crisis.
Despite the sluggish wage growth, economists say the jobs data is enough to justify a rate hike, possibly in September.
"It's good enough to allow the Fed to begin tightening policy," Jeremy Lawson, senior economist at Standard Life Investments, told CNN.
Based on swaps market trades, JP Morgan said the probability of a quarter percentage-point rate increase rose to 65% when the jobs data were released Friday compared to 55% the previous day.
Last month, the central bank said it wanted to see further gains in the labor market before raising rates, which had been kept near zero since the crisis to stimulate growth.
Traders and investors are wary of an interest rate hike, having been accustomed to cheap borrowing costs.
"Investors are looking beyond the first rate hike to where rates will be two, three, or four years down the road," Scott Anderson, chief economist at Bank of the West in San Francisco, told the New York Times.
There won't be a negative impact on ordinary Americans. In fact, they stand to benefit from higher rates, as yields on checking accounts and money market deposits would rise, according to Anderson.
Apart from the July jobs data, Fed officials will also take into account the July inflation and August jobs data, as well as the latest from such troubled economies as Greece and China when they meet next month.