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Friday, August 6, 1999 Published at 14:38 GMT 15:38 UK


Business: The Economy

Big jump in US jobs and wages

Average wage rises are getting larger as unemployment remains low

The continuing strength of the US economy was confirmed with the news that it generated 310,000 new jobs in July.

The Labor Department figures released on Friday put the unemployment rate steady at 4.3%, but with a sharp rise in average hourly wages.


[ image: Fed chief Greenspan has warned of wage pressure causing inflation]
Fed chief Greenspan has warned of wage pressure causing inflation
That has led to renewed concerns that US interest rates might be about to rise.

The non-farm jobs total far outstripped Wall Street economists' forecasts for about 200,000 new jobs.

The strong July gain was well above the average monthly increase of 208,000 during the first half of 1999.

Hourly earnings - a key measure of inflation pressures - rose in July to $13.29, an increase of 3.8% compared with a year earlier. The month-on-month increase was 0.5%.

The stronger than expected figures led to the Dow Jones index falling as soon as Wall Street opened. At 1333 GMT it was down 35.78 at 10,758.04. It bounced back to stand nearly level for the day at 1412 GMT.

Leading shares in London also tumbled, losing nearly all their gains of the day before rising back up 37 points on Thursday's close.

The reason is widespread predictions that the strong growth in the US economy will prompt the American central bank, the Federal Reserve, to raise interest rates later this month in an effort to avoid inflation creeping up.

Early rate rise?

The Fed chairman, Alan Greenspan, recently told Congress he was ready to act "promptly and forcefully" to raise rates if there were signs labour costs and prices were starting to accelerate in a manner that could generate inflation.

"This is our first comprehensive look at what the economy did as we began the third quarter and the news is not particularly encouraging," said Hugh Johnson, chief investment officer at First Albany Corp.

"It appears as though the economy is stronger than expected and it certainly appears as though there is ongoing, upward pressure on wages.

"This will not make the Federal Reserve comfortable. They are very likely to raise short- term interest rates 0.25% when they meet on 24 August," he said.


[ image: Consumer spending has helped create service industry jobs]
Consumer spending has helped create service industry jobs
Some believe the Fed might not even wait that long. "I would deduce from this that we are looking for a rate increase sooner rather than later," said Arthur Hogan, chief analyst at Jeffries and Co. "It could happen over the weekend and give us a surprise on Monday."

The number of new jobs was partly down to temporary help agencies, which showed their strongest rise in 18 months.

Restaurants, computer companies and engineering firms also showed big gains, and manufacturing took on 31,000 workers, only the second time the sector had taken on staff rather than laying them off since early last year.



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