6 July 2007, 17:25   U.S. employment posted a solid rise last month

U.S. employment posted a solid rise last month on strong hiring in health care and government and previous months' gains were revised sharply higher, suggesting labor market conditions remain very supportive of economic activity at midyear. The figures suggest a continuation of the Federal Reserve's lengthy interest-rate pause is likely for the next several months at least amid signs of well contained wage pressures. They could even put the prospect of rate increases on the table for next year if confirmed by future data. Non-farm payrolls increased 132,000 in June, after swelling 190,000 in May and 122,000 in April, the Labor Department said Friday. Previous reports showed job growth of just 157,000 in May and 80,000 in April. Monthly job growth has averaged a robust 145,000 so far this year. The unemployment rate was unchanged last month at 4.5%. Average hourly earnings increased $0.06, or 0.3%, to $17.38. That was up 3.9% from a year earlier, suggesting tight labor markets still aren't putting much pressure on labor costs. The June payroll gain was in line with Wall Street expectations of a 128,000 rise. Many economists had braced for a higher payroll number following a report Thursday from Automatic Data Processing and Macroeconomic Advisers suggesting that more rapid hiring occurred last month. Forecasters had expected a 4.5% unemployment rate and 0.3% rise in wages. The data provide further evidence that the economy has picked up considerable steam after several subpar quarters. Gross domestic product advanced just 0.7% in the first quarter. However, economists expect that to mark a low point of the current cycle with growth likely exceeding 3% in the second quarter. Economists generally think the economy can expand around 3% without generating much inflation. Yet even amid reaccelerating growth, underlying inflation has fallen at a surprisingly quick pace in lagged response to last year's economic slowdown. A key question heading into the second half of 2007 is which quarter, the first or second, better reflects the economy's underlying state. The latest employment report - coupled with other data like the Institute for Supply Management's June purchasing managers indexes suggest it's the second. With the jobless rate near six-year lows, consumers should remain supported in coming months, suggesting that second quarter economic momentum carried into the current quarter despite ongoing weakness in housing and sluggish automobile sales. Consumer spending makes up about two-thirds of GDP, so even modest growth there can offset sizable drags in other sectors. The jobs data also suggest the Fed's steady interest-rate stance - which hit the one-year mark last week - will extent at least until the end of 2007, if not longer. And the payroll figures appear to confirm the Fed's view that economic conditions have brightened while inflation remains the primary risk.

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