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The U.S. hiring boom continued last month, with employers adding 528,000 jobs, more than double the expected number.
Government data showed a labor market continuing to defy soaring inflation and consecutive quarters of GDP contraction, raising fears of a recession.
This marked the 19th consecutive month of payroll expansion and will strengthen the case for the Federal Reserve to continue its aggressive policy tightening.
Like the Bank of England, the Fed raised interest rates in an effort to bring inflation back to its 2% target. In June, it reached 9.1%.
Experts said it is now more likely to offer a third rate hike of 75 basis points at its next meeting in September, after raising the rate by three-quarters of a percentage point last week.
The central bank has already raised rates by 2.25 percentage points this year.
Employment rose from 398,000 in June, while the unemployment rate edged down to 3.5% from 3.6% in June.
Demand for workers was weaker in sectors such as housing and retail – which are more sensitive to interest rate hikes – but airlines and restaurants struggled to find enough workers.
Average hourly earnings rose 0.5% in July after gaining 0.4% in June, an annual increase of 5.2% from 5.1% in June.
The dollar rush hurts the pound
The news also had an effect on the currency markets – the run on the dollar caused the pound to lose almost 1.5 cents.
Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, told Reuters: “What we’ve heard from various Fed governors this week that it’s too early to move away from a policy of tightening is definitely in place with the jobs report being ‘this hot’.
“That gives the Fed a reason to keep raising rates, and that’s what made the market nervous.”
“Some difficulties ahead”
Hinesh Patel, portfolio manager at Quilter Investors, said: “Every unemployment rate has fallen or stayed at post-pandemic levels as the economy continues despite the economic difficulties on the horizon.
“Private payrolls are now above pre-pandemic levels as the US continues to emerge from COVID and is in better shape than many of its developed market counterparts.
“The Federal Reserve will see this as a sign that it needs to continue to increase aggressively to rein in inflation and rid some of the scum in this tight labor market.
“However, the last earnings season portends trouble. Just recently, Walmart’s earnings, a good indicator of consumer confidence and the state of the US economy, have started to sound alarm bells.
“The United States is a robust market, however, and much of the negativity, however, is driven by statistical quirks and the plague of inflation. The future direction of the Federal Reserve, as we have seen this whole year, will ultimately depend on the path of inflation.”
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