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Strong US job gains make mid-year interest rate hike more likely

Strong US job gains make mid-year interest rate hike more likely
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More solid job growth in the United States in January has demonstrated the underlying strength in the world’s largest economy.

Payrolls increased by 257,000 last month and the numbers for November and December was significantly revised upwards by a total of 147,000.

Wages also rebounded strongly, after December’s surprise drop.

At 423,000, November’s payroll gains were the largest since May 2010. There were 329,00 jobs added in December.

While the unemployment rate increased from 5.6 percent to 5.7 percent, that was because the labour force increased in size, a sign of confidence in the jobs market.

The share of working-age Americans who are employed or at least looking for a job, also rose.

This all comes despite US economic growth slowing. Growth braked to a 2.6 percent annual rate in the fourth quarter of 2014.

The pick-up in wages, combined with lower oil prices, is likely to give a big boost to consumer spending keeping the US economy growing at a fairly healthy rate.

The Federal Reserve will be looking closely at the latest statistics and their strength makes it more likely we could see an interest rate rise as early as June from the policymakers at the US central bank .

Interest rate hike expectations had been dialed back to September in the wake of December’s surprise drop in wages.

“While it’s important not to over-react to one data point, there are exceptions and this is one of them. Employment growth is clearly on fire and its beginning to put upward pressure on wage growth. The Fed can’t wait much longer in that environment, particularly not when interest rates are starting at near-zero,” said Paul Ashworth, chief US economist at Capital Economics in Toronto.

The sector breakdown

US manufacturing added 22,000 jobs in January.

Construction payrolls increased 39,000 after rising 44,000 in December.

Retail employment increased 45,900 after braking sharply in December.

The only areas of weakness were government, where payrolls fell 10,000, and transportation employment which dropped 8,600, the first drop since last February.

Temporary help fell 4,100, the first drop in a year.