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By Lucia Mutikani
August 5, 2011 4:28 PM EDT
U.S. job growth accelerated more than expected in July, tamping down fears the economy was sliding into a fresh recession and easing pressure on the Federal Reserve to provide more support for the weak economy.
Nonfarm payrolls increased 117,000 after slowing abruptly in the past two months, Labor Department data showed on Friday. The rise beat economists' expectations for an 85,000 gain.
The unemployment rate dipped to 9.1 percent from June's 9.2 percent, but that was because discouraged job-seekers gave up the search for work. Still, the report was heartening after a rush of disappointing data over the past week.
"This shows that the U.S. economy is not dead yet. We have potential to get back on track with moderate growth to a strong recovery next year," said Kurt Karl, head of economic research and consulting at Swiss Re in New York.
Average hourly earnings rose 10 cents, the largest increase since November 2008 and good news for spending. Over the past year, earnings are up 2.3 percent, the biggest 12-month gain since October 2009.
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The tenor of the report was also helped by revisions showing 56,000 more jobs were added in May and June than first thought.
A separate report showed consumer credit rose $15.5 billion in June, the biggest gain since August 2007 and another hopeful sign for the economy.
But the jobs data showed the labor market still has a steep climb to regain health. The economy needs to create at least 150,000 jobs a month to keep the unemployment rate from rising further, and only two million of the 8.7 million jobs that were lost during the recession have been recovered.
President Barack Obama on Friday renewed a call for an extension of a payroll tax cut and emergency unemployment benefits to help support the economy. Republican opponents offered a prescription of budget cuts and easier regulation.
High oil and food prices and supply chain disruptions following a major earthquake and tsunami in Japan in March knocked the recovery off course in the first half of year and left the economy vulnerable to recession just two years after the worst downturn since the 1930s ended.
Some economists have put the chances of a new slump as high as 40 percent.
The data failed to halt a rout in global stocks that has stretched for eight days on U.S. recession fears and Europe's inability to tame its spreading debt crisis. Investors are worried policymakers are running out of bullets
U.S. stocks opened higher but see-sawed sharply, with major indexes down as much as 2 percent at times. Stocks closed mixed, with the Dow industrials up half a percent, the Nasdaq down 0.9 percent and the Standard & Poor's 500 index down a fraction.
The dollar weakened broadly as investors showed a little more appetite for risk-taking. But gold prices rose in a sign risk-aversion had far from fully dissipated.
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