WASHINGTON, Aug 7: The still-surging US economy pumped out 310,000 new jobs last month, the government ’ said yesterday In a report far exceeding expectations and widely expected to prompt an. interest rate hike by the Federal Reserve this month, reports AFP.

In addition to the Job creation figure, well above the anticipated 200.000. the Labour . Department reported that average hourly earnings in July rose 0.5 per cent over June, when the gain was 0.4 per cent.

The unemployment rate for July was unchanged at 4.3 per cent.

Many analysts now predict that rising employment, upward wage pressures and slower growth in worker productivity — just 1.6 per cent in the second quarter — will Induce inflation conscious Fed policymakers to tighten credit at least a quarter of a point when they convene August 24.

The Labour Department announcement depressed sentiment on Wall Street, where most stocks indexes fell.

The bond market suffered even more, with yields on the benchmark 30-year Treasury. bond, which move opposite to price, rose to 6.117 per cent from 6.042 per cent on Thursday.

"There is nothing in this jobs report that would argue against raising Interest rates at

the August 24 meeting." said Sal Guatieri, senior economist at Harris Bank/Bank of Montreal in Chicago.

"The report is so strong and the gains broadly based across all Industries. The Fed has a lot of reasons to be concerned about the economy not slowing to an inflation-safe pace."

Guatieri foresees a quarter point hike this month in the federal funds rate to 5.25 per cent followed by a further increase in October or November as well as two niore tightening moves next year.

The July report showed that the manufacturing sector', which took a big hit when exports fell during the 1997-1998 Asian financial crisis, added 31.000 jobs last month, its first gain in 11 months.

"The past three months have seen an average of 204,000 new jobs, or just a 1.9 per cent annual rate and the year-on-year rate is still a relatively moderate 2.3 per cent," according to David Orr. First Union chief economist.

The problem arises because the labour force cannot grow that fast any longer, now that unemployment is so low."

In July the civilian labour force contracted by 154.000 to 139.3 million.

Fed Chairman Alan Greenspan has repeatedly warned that a shrinking pool of available workers In a consumer-driven booming econ-

omy will eventually force employers to raise wages, which will in turn show up as higher prices.

Until now. steady gains in ’ worker productivity — the amount of a product turned out in an hour of labour — has held inflation largely in check.

But growth in productivity slowed dramatically in the second quarter to 1.6 per cent, down from 3.6 per cent in the first.

Greenspan last month told Congress the Fed was poised to intervene if productivity growth flagged and inflationary pressures intensified.

The pace of US economic growth throttled back to 2,3 per cent in the second quarter from 4.3 in the first.

But William Sullivan, senior economist at Morgan Stanley Dean Witter, pointed to gains in manufacturing employment as an indication that the economy is still expanding too fast for the Federal Reserve.

The Fed will have to more gingerly in trying to cool off the economic momentum, taking care not to provoke a sharp stock market correction that could destabilise markets around the world.

The Fed has to worry that if it raises rates too much, the stock market will collapse, which will result in a big, negative hit On wealth causing consumer spending to plunge," according to Guatieri.