By Lucia Mutikani
U.S. job growth accelerated more than expected in July as private employers stepped up hiring, a development that eased fears that the economy was sliding into a fresh recession.
Non-farm payrolls increased 117,000, the Labor Department said on Friday, above market expectations for an 85,000 gain. The unemployment rate dipped to 9.1 percent from 9.2 percent in June, mostly the result of people leaving the labor force.
The payrolls count for May and June was revised to show 56,000 more jobs added than previously reported. The report was the first encouraging piece of economic data in some time.
"While I do not think this sounds the all-clear signal, it does quell some of the conversation that the U.S. is falling back into a recession," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York.
"There are still plenty of headwinds, like Europe. This report pulls us back from the ledge a little bit."
Fears that the U.S. economy might be sliding back into recession, coupled with Europe's inability to tame its spreading debt crisis, have roiled global financial markets. Economists see the probability of a U.S. recession as high as 40 percent.
U.S. stock index futures rallied more than 1 percent on the report, while prices for Treasury debt slid. The dollar trimmed losses against the yen.
Top policymakers at the Federal Reserve will sift through the report when they meet on Tuesday but are not expected to announce any new measures to support the sputtering recovery.
The Federal Reserve has cut interest rates to zero and spent $2.3 trillion on bonds. Policymakers have said that they want to see how the economy fares before taking any further action.
Growth Has Stalled
U.S. growth stalled in the first half of 2011, fanning fears of a new downturn. Gross domestic product grew at a 1.3 percent annual pace in the second quarter, after a scant 0.4 percent rise in the first three months of the year.
A stand-off between Democrats and Republicans over raising the country's debt ceiling poisoned the atmosphere for employers and consumers. The economy's poor health has eroded President Barack Obama's popularity among Americans and could hurt his chances of re-election.
The borrowing limit was raised this week in a deal that relied on spending cuts. Economists estimate that the budget cuts and expiring stimulus -- including a payroll tax cut and emergency unemployment benefits -- could subtract more than a percentage point from GDP growth next year.
Private Hiring Steps Up
All the gains in non-farm employment in July came from the private sector, where payrolls rose by 154,000 employees -- an acceleration from June's 80,000 increase and more than the 115,000 expected by economists.
Government payrolls dropped 37,000 in July, a ninth straight month of job losses. The drop was mostly due to a government shutdown in Minnesota that left thousands of state workers without paychecks during the survey period for July payrolls.
With looming budget cuts at the federal government level, and state and local governments still tightening their belts, the burden of job creation falls on the private sector.
Within the private sector, most of the job gains were concentrated in the services sector. Temporary help -- a harbinger of permanent hiring -- rebounded modestly after declining for three straight months.
Manufacturing payrolls rose 24,000 after increasing 11,000 in June. Most the gains came from the auto sector. Construction employment increased 8,000 after dropping 5,000 in June.
The average work week was steady at 34.3 hours, but average hourly earnings rose 10 cents.
(Reporting by Lucia Mutikani; additional reporting by Julie Haviv in New York; editing by Andrea Ricci.)
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