Another U.S. hiring burst, but wage growth remains sluggish

Last Updated Aug 4, 2017 9:03 AM EDT

It's a good news-bad news situation for American workers. 

U.S. employers added 209,000 jobs in July, a second straight month of robust gains that underscore the economy's vitality as it enters a ninth year of expansion. The tally exceeded economists' forecasts that employers would add a healthy 180,000 jobs. 

The Labor Department says the unemployment rate slipped to 4.3 percent, matching a 16-year low first reached in May.

Growth in Americans' paychecks, however, remains stubbornly slow. Average hourly pay rose by 2.5 percent from a year earlier, the same tepid annual pace as in June. That's below the 3.5 percent to 4 percent that is typical when the unemployment rate is this low.

Still, the hiring data suggests employers remain optimistic about their businesses and future consumer demand. The solid job gains may also fuel greater consumer spending, which would bolster economic growth. The robust jobs numbers reinforce the country's continued economic growth, a trend that President Donald Trump took credit for in a Friday morning tweet, saying he has "only just begun."

Economists pointed to the strong numbers as a sign the Federal Reserve will raise rates later this year.

"If the labour market continues to tighten over the coming months, as the survey evidence suggests it will, the Fed will press ahead with rate hikes and balance sheet normalisation later this year," noted Michael Pearce, U.S. economist at Capital Economics. 

Still, robust hiring may give the Federal Reserve headaches. For months, economists have expected hiring to slow as the unemployment rate falls, leaving employers a dwindling supply of job seekers to choose from. That can act as a brake on job gains.

But if healthy hiring persists, it suggests employers are still finding plenty of workers.

Why is that a problem for the Fed? Because Fed policymakers have raised short-term interest rates three times in the past seven months, based on the idea that employers will soon have to pay more to attract workers. Higher wages can force companies to raise prices, which can lead to inflation.

The Fed has raised rates to forestall inflation. But if employers are still hiring at a strong pace, that suggests employers have plenty of workers to choose from and won't have to raise pay. Some economists argue the Fed should keep rates low so this trend can continue and more people can come off the sidelines and find work.