US employment increased at a healthy clip in July, with wages picking up, which should help to underpin consumer spending and boost the economy.

The Labour Department’s closely-watched employment report yesterday showed that nonfarm payrolls increased by 255,000 jobs last month. While that would be a step down from June’s 292,000 surge, July’s gain is still above the average monthly advance of 171,500 jobs over the first half of the year.

June’s robust hiring, which followed a mere 11,000 gain in May, was viewed as unsustainable given that the economic growth in the last three quarters averaged a one per cent annualised rate.

Job growth will reinforce the Federal Reserve’s confidence in a labour market that officials view as at or near full employment, economists say. Fed chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with population growth.

“The Fed is likely to take encouragement from this jobs’ report as even a 180,000 print will still be consistent with further progress in absorbing labour market slack,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

After a policy meeting last month, the Fed described the labour market as having “strengthened” and that the job market measures pointed to some “increase in labour utilisation”. The US central bank hiked interest rates in December for the first time in nearly a decade, but has held them steady since amid concerns over persistently low inflation. Most economists expect another rate hike in December, though financial markets have almost priced out that possibility.

Pointing to labour market strength, the unemployment rate dropped one-tenth of a percentage point to 4.8 per cent. In addition, average hourly earnings increased 0.3 per cent after edging up 0.1 per cent in June. That keeps the year-on-year gain at 2.6 per cent.

“As the labour market continues to tighten, I think we will see wage growth further accelerate,” said Gus Faucher, deputy chief economist at PNC Financial Services Group in Pittsburgh.

“Consumers are driving economic growth right now and one of the reasons is that wage growth has gotten a bit stronger.”

The solid gain in payrolls adds to July auto sales in underscoring the economy’s sound fundamentals. Economic growth is expected to accelerate to at least a 2.5 per cent annualised rate in the third quarter.

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