WASHINGTON (AP) – U.S. employers cranked up their hiring in July, adding more than 200,000 jobs in a summertime show of confidence in the economy’s staying power. The unemployment rate held steady at 5 percent.

The report released by the Labor Department on Friday raised hopes that job opportunities will continue to expand in the months ahead.

The 207,000 increase in payroll jobs last month – the most since April – reflected hiring across a range of industries. Retailing, health care, financial activities and construction all expanded employment. But factories shed jobs for the second month in a row.

“Once skittish businesses are turning into confident businesses that are willing and able to hire,” said Mark Zandi, chief economist at Economy.com. “I think the job market will improve further in the course of the coming year.”

As the labor market gained traction, workers’ wages also went up.

Employees’ average hourly earnings rose to $16.13 in July. That was 0.4 percent more than the $16.07 in June. The increase was the most in a year. Average weekly earnings climbed to $543.58 in July, up from $541.56 in June.

While wage growth is good for workers, the increase was worrisome to investors and some economists who fret about inflation pressures picking up.

Stock price averages on Wall Street were down.

To keep inflation in check, the Federal Reserve is expected to raise short-term interest rates by one-quarter of a percentage point when it meets Tuesday. It would be the 10th such increase since the central bank began tightening credit in June 2004.

Fed Chairman Alan Greenspan has said the central bank would keep close watch for signs of inflation, especially any from the compensation front.

Analysts pointed to the growth in jobs and in earnings as raising the odds that the Fed will extend its credit-tightening campaign well into 2006 to thwart inflation. If wages keep on rising at the pace seen in July, the Fed might opt for a bolder, half-point rate increase later this year, some economists said.

“What needs to be watched is the wage situation,” said Joel Naroff of Naroff Economic Advisors. “Was the jump in wages a one-shot wonder or does it portend accelerating labor costs? That is the unknown right now.”

On a positive side, analysts said the pickup in wages should help support consumer spending, the economy’s lifeblood, in the months ahead.

On the payroll front, employers added 42,000 more jobs in May and June combined than the government previously thought – figures that heartened economists.

So far this year, the economy is adding an average of 191,000 jobs a month. That is better than the average of 183,000 a month registered last year.

The payroll performance in July exceeded economists’ expectations. They were predicting a gain of 180,000 positions and expected the jobless rate to hold steady at 5 percent, close to a four year low.

The labor market is the one part of the economy that has had difficulty getting back to full health after the 2001 recession. Rather than ramp up hiring, companies had relied largely on squeezing more productivity out of existing workers to meet customers’ demand.

During President Bush’s first term, the economy created just 119,000 net new jobs. So far in his second term, the economy already has created more than 10 times that number.

“Now companies are convinced that the expansion is getting stronger and is sustainable and they are increasing hiring to meet expected demand,” said Anthony Chan, senior economist at JP Morgan Asset Management.

The economy grew at a 3.4 percent pace in the second quarter and is expected to clock in at a 4 percent pace or higher in the July-to-September period.

“The economy has finally transitioned to another phase, a phase where the combination of sustained economic growth along with stronger business confidence will produce a steady creation of 200,000 positions per month,” predicted Ken Mayland, president of ClearView Economics.

The Bush administration pointed to the employment report as evidence the economy is on a healthy growth path. But Democrats questioned whether hiring gains will be sustained and said the labor market climate can still be tough for some people.

The report showed that the average time that the 7.5 million unemployed spent searching for work in July was 17.6 weeks, up from 17.1 weeks in June.


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