US non-farm payroll growth exceeds forecasts in July

Hiring in the US picked up last month, maintaining the nearly 1.0m per month pace of gains seen in June.

But economists appeared divided on the outlook due to the still low labour force participation rate and the pick up in Covid-19 infections due to the so-called Delta variant.

According to the Department of Labor, non-farm payrolls increased by 943,000 in July, following an upwardly revised 938,000 person gain in June.

Economists had penciled-in a rise of 870,000 after the preliminary estimate of a 850,000 person increase in June.

Leisure and hospitality registered the biggest increase in hiring, increasing by 380,000, followed by a 261,000 jump in public and private education employment.

Labor said the latter might reflect a continuation of the seasonal distortion evident in June.

Yet the biggest surprise was seen in the rate of unemployment, which is derived from a separate survey than the non-farm numbers.

Unemployment on this measure fell from 5.9% in June to 5.4% for July, sharply undershooting the 5.7% rate expected by economists.

The labour force participation rate however only improved by a tenth of a percentage point to 61.7%.

Average hourly earnings rose by 0.4% month-on-month.

Andrew Hunter at Capital Economics said that after Friday's jobs report the risk to an earlier start to the Fed tapering its asset purchases.

Hunter had previously anticipated that the Fed would hold off until early 2022.

Hinish Patel, portfolio manager at Quilter Investors, was more cautious, telling clients that the Delta variant meant that the July non-farm payrolls numbers might mark a bit of a highpoint in jobs growth for some time.

Delta had also revealed just how vulnerable the global economy was to new strains - and then there was the problem of increasing automation.

"But for now, the Fed will be hoping everyone returns to work and offices in September once the Delta surge has eased off, confidence resumes and vaccination rates improve.

"The biggest problem the Fed has is the fact that the participation rate remains at a near 40-year low and they seem to think they have influence over this.

"This pandemic has changed the way the economy works and ushered in new waves of automation. This is something that they will struggle to control over the longer-term and will mean fiscal support will need to step up even as the recovery continues."