Fed expected to peg rates as jobs are shed

The US economy shed jobs for the first time in 4 years last month, fuelling expectations that the blistering pace of growth is finally easing and that the Federal Reserve will leave interest rates on hold later this month.

Although the fall in employment was largely due to the laying-off of nearly 300,000 temporary workers, analysts said the figures would probably persuade the Fed to hold rates steady when it meets on August 22.

Hugh Johnson, chief investment officer of First Albany in New York, said: "These are very good numbers. They show that the slowdown in the economy in the second quarter has continued in the third. There is some upward pressure on wages but not significant."

The figures, which gave a boost to the euro against the dollar, showed a total of 108,000 posts were lost in July - the first time since the blizzard-driven month of January 1996 that the US economy failed to generate more jobs.

The decline was the largest in non-farm payrolls for any month since April 1991 - just as the economy was emerging from the last recession.

The private sector did create 138,000 jobs but that was less than in June and it was more than offset by the departure of 290,000 temporary workers who had been hired for Census, conducted every 10 years.

Analysts said the loosening of the jobs market may imply that six interest-rate rises by the Fed have begun to slow economic growth, easing inflationary pressure, although there was lingering concern about wage growth, up 0.4% in July to $13.76 an hour in contrast to forecasts for a 0.3% rise.

The employment report was one of the last big pieces of data the Fed will see prior to its meeting. "The bottom line is that it doesn't really nudge the Fed to act," said Anthony Chan, chief economist at Banc One Investment Advisors in Boston. "This was a judgment day number and the prognosis is the Fed doesn't move in August."

The euro later slipped against the dollar after meeting resistance at 91 cents but it was still 1/2 cent above the day's 90.13 cent low in late afternoon trading.