Job growth steps up, but jobless rate rises

WASHINGTON (Reuters) - U.S. employers in July hired the most workers in five months, but an increase in the jobless rate to 8.3 percent could keep prospects of further monetary stimulus from the Federal Reserve on the table.

Nonfarm payrolls rose 163,000 last month, the Labor Department said on Friday, snapping three straight months of job gains below 100,000 and offering hope for the ailing economy.

But the unemployment rate rose from 8.2 percent in June, even as more people gave up the search for work and a survey of households showed a drop in employment.

"As long as the unemployment rate is high, the central bank will have to consider further stimulus," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

The Federal Reserve on Wednesday sent a stronger signal that a new round of major support could be on the way if the recovery did not pick up. The labor market has slowed after hefty gains in the winter, spelling trouble for President Barack Obama.

A recent Reuters/Ipsos poll showed 36 percent of registered voters believe Republican presidential candidate Mitt Romney has a better plan for the economy, compared to 31 percent who had faith in Obama's policies.

White House economic adviser Alan Krueger told Reuters Insider the rise in the unemployment rate was unwelcome. Romney said the rise in the jobless rate was "a hammer blow to struggling middle-class families."

While payrolls beat economists' expectations for an increase of 100,000, details of the household survey were not encouraging.

A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, edged up to 15 percent from 14.9 percent in June.

In addition, the labor force participation rate, or the percentage of Americans who either have a job or are looking for one, fell to 63.7 percent last month from 63.8 percent.

Economists are skeptical July's job growth pace will be sustained given the clouds from a potential tightening in fiscal policy next year and the ongoing debt troubles in Europe hanging over the economy.

WILL GAINS BE SUSTAINED?

"The key question is now is will it be sustained? The backdrop remains challenged, seeing anything meaningfully better than this will in itself be a challenge," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.

"We're still in an environment where productivity is slowing, where profit growth is slowing, and we don't think that is a robust environment to see meaningful job gains."

Stocks on Wall Street rallied on the report. Investors were also cheered by a second report showing the pace of growth in the services sector edged up in July as new orders gained traction.

Prices for U.S. government debt fell and the dollar weakened against a basket of currencies.

Data last week showed the economy grew at an annual pace of 1.5 percent in the second quarter, far short of the 2.5 percent rate needed to keep the unemployment rate stable.

The private sector again accounted for all the job gains, adding 172,000 new positions. Government payrolls dropped by 9,000, as cash-strapped local governments laid off teachers.

Construction employment dipped 1,000, despite a rise in home building. Manufacturing payrolls increased 25,000, largely because of fewer layoffs in the auto sector as manufacturers kept production lines running during the month.

Within the vast services sector, employment gains were fairly widespread. From retail to professional and business services, employers added workers.

Temporary help services increased 14,100 after rising 21,100 the prior month. But hiring in the utility sector was restrained by a strike at a power firm in New York last month.

Average hourly earnings increased 2 cents last month, suggesting consumer spending will struggle regain steam after it slowed sharply in the second quarter.

The average workweek was unchanged at 34.5 hours.

(Reporting By Lucia Mutikani; Editing by Neil Stempleman)

Source: http://news.yahoo.com/jobs-increase-july-jobless-rate-rises-8-3-123728688--business.html

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