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As jobs increase, reasons to doubt economy dwindle

The July jobs news — a broad-based gain of 255,000 — had something for economists of virtually every stripe to cheer.

The July jobs news — a broad-based gain of 255,000 — had something for economists of virtually every stripe to cheer.

The only thing experts fretted about was that job growth at the current pace is probably not sustainable because the unemployment rate, at 4.9 percent, is so low.

“The July labor market report was exceptionally strong, and the warts were few and far between,” Millan Mulraine, deputy chief U.S. macro strategist at TD Securities, told the Wall Street Journal.

Not only did employment rise, but wages did, as well. In July, average hourly earnings for all employees on private nonfarm payrolls increased by 8 cents, to $25.69, the Bureau of Labor Statistics reported. Average hourly earnings have risen by 2.6 percent this year.

Responding to the strong jobs news, the S&P 500 index and the Nasdaq composite index closed at record highs at the end of the week.

Concerns about interest rates are starting to bubble up now that the economy has added well over 200,000 jobs for the past two months; the Labor Department upwardly revised the June figure to 292,000.

"The July jobs report was everything you could have asked for, and more. Provided the strength in jobs is confirmed with other economic data, the Fed will have sufficient reason to hike [rates] this year," Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York, told Reuters.

Discussing rates with the Journal, Jeff Carbone, managing partner at Cornerstone Financial Partners, had a somewhat different view. He said uncertainty in Europe will likely have a larger effect on whether the central bank raises interest rates than the July jobs numbers.

The jobs report completed a week during which most economic indicators were upbeat. Autodata said U.S. car sales rose in July at a seasonally adjusted annual rate of 17.88 million, a gain that beat forecasts, although Ford, GM and Fiat Chrysler reported sales that were below expectations.

"We aren't seeing sales fall off a cliff; we're just seeing them settle in at around 17.4 million, and that's an awfully high number. A couple years ago, any of the car companies and investors would have killed for those kind of numbers. If we settle into the mid-seventeen [millions] for any length of time, these car companies are still making a lot of money," Karl Brauer, of Kelley Blue Book, an automotive research company, told CNBC.

Indeed, GM's chief economist, G. Mustafa Mohatarem, and Ford's sales chief, Mark LaNeve, told Reuters that sales are clearly still at healthy levels. Sales for the year were 1 percent higher than they were at this time in 2015, a year that ended at a record high, Mohatarem said.

"Let's calm down on the doomsday talk," he said at an industry conference in Traverse City, Mich.

As big-ticket items, cars and trucks are a strong gauge of the strength of consumer spending, which rose 0.4 percent in June, the third month in a row of solid increases. MarketWatch reported that spending from April through June represented the largest quarterly gain since the economy began to recover from the Great Recession in mid-2009.

Personal income rose 0.2 percent in June, slightly slower than expected, but the two reports in tandem suggested that at least moderate economic growth will continue during the second half of the year. Core inflation, the rate that strips out volatile food and energy categories, rose just 0.1 percent in June.

One apparent stumble was that consumer borrowing rose in June at the slowest pace since July of 2012 — $12.3 billion, to a seasonally adjusted $3.6 trillion. Consumer-credit growth had been occurring at an average annual rate of 5.8 percent this year before the slowdown in June.

Analysts told MarketWatch that lower motor-vehicle loans probably were the reason for the speed bump.

“The big car-buying months are April, May, and June, and some consumers may have pulled forward some of their purchases,” said Randy Hopper, vice president for credit cards at the Navy Federal Credit Union.

This week’s most important business reports will come Friday, when the Commerce Department releases retail sales results for July and the University of Michigan issues its preliminary Consumer Sentiment Index for August.

An additional gauge of consumer spending will come during the week as the Disney entertainment company and department store companies that include Macy’s deliver quarterly earnings reports.

Business Insider said the retail sales report, if it proves strong, could give the Federal Reserve more ammunition to raise interest rates before the year ends.

"It continues to be a system in which you need the consumer to demonstrate some strength, but not too much strength because if it’s too much strength, then now [Fed chairman] Janet Yellen gets into the picture," Jeff Weniger, senior strategist at BMO Wealth Management in Chicago, told Business Insider.

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