Bloomberg News

WASHINGTON - Unemployment stayed at 4% in July, and businesses added workers at a slower pace than earlier in the year, trends that suggest Federal Reserve policymakers will refrain from raising interest rates this month.

Businesses added 138,000 jobs last month - compared with a first-half average of 182,000 - after creating 242,000 in June, the government said Friday. Completion of work by census-takers was the chief contributor to a loss of 108,000 jobs overall.

"Hiring is slowing," said Robert Dederick, an economic consultant at Northern Trust Co. in Chicago. That means the Fed "isn't going to feel the need" to raise rates at its Aug. 22 policy meeting, he said.

The Fed, which has raised interest rates six times since June 1999 to keep the economy from overheating, watches employment figures for signs that increasing demand for workers is boosting inflation. Labor expenses total about two-thirds of the cost of doing business.

Fed Chairman Alan Greenspan suggested in testimony to Congress last month that inflation will not become a problem as long as productivity increases offset higher compensation costs. William Poole, president of the St. Louis Fed, said on Wednesday that low to stable inflation is giving central bankers "the luxury" to experiment with faster growth than previously thought possible.

Hourly earnings in July were 3.7% higher than the year earlier, about the same as the average year-over-year increase for the last two years. In July alone earnings rose 0.4%, or 6 cents an hour, after going up 0.3% in June.

Worker productivity rose 3.7% in the first quarter against the year-earlier period.

The government eliminated 290,000 temporary jobs in July as the Census Bureau wrapped up its population count, which began in January.

Employment at financial firms rose 6,000 in July, the first increase since February.

Factories added 46,000 jobs in July, after a 13,000-job increase at eating and drinking establishments offset a drop at department stores.

The construction industry added 6,000 jobs after adding 2,000 in June. Builders have added an average of 17,000 jobs a month this year, the Labor Department said.

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