July job gains may fa­vor Septem­ber in­ter­est rate rise

The Pak Banker - - BUSINESS -

The num­ber of U.S. jobs prob­a­bly rose at a healthy pace in July and wages likely re­bounded in data due on Fri­day, pro­vid­ing fur­ther signs of an im­prov­ing econ­omy that could al­low the Fed­eral Re­serve to raise in­ter­est rates in Septem­ber.

A Reuters sur­vey of econ­o­mists forecast U.S. non­farm pay­rolls in­creased by 223,000 last month, match­ing June's job gains, a num­ber which would be slightly above the monthly av­er­age for the first half of the year. Though the pace of hir­ing has slowed from last year, it re­mains dou­ble the rate needed to keep up with pop­u­la­tion growth. The La­bor Depart­ment will re­lease its closely watched em­ploy­ment re­port on Fri­day at 8:30 a.m. "We ex­pect this re­port to de­liver a fur­ther jolt to the Fed's con­fi­dence in their rel­a­tively op­ti­mistic eco­nomic out­look and fur­ther so­lid­ify the bias for a Septem­ber hike," said Mil­lan Mul­raine, deputy chief economist at TD Se­cu­ri­ties in New York.

The Fed last month up­graded its as­sess­ment of the la­bor mar­ket, de­scrib­ing it as con­tin­u­ing to "im­prove, with solid job gains and de­clin­ing un­em­ploy­ment." There is, how­ever, a lot of un­cer­tainty sur­round­ing July's pay­rolls forecast af­ter data ven­dor ADP this week re­ported a sharp slow­down in pri­vate sec­tor hir­ing last month, even though a gauge of ser­vices sec­tor em­ploy­ment from the In­sti­tute of Sup­ply Man­age­ment hit a 10-year high.

Av­er­age hourly earn­ings are ex­pected to have in­creased 0.2 per­cent last month af­ter be­ing flat in June, putting them about 2.2 per­cent above their year-ago level, but leav­ing them well be­low the 3.5 per­cent growth rate econ­o­mists as­so­ciate with full em­ploy­ment. Still, the rise in wages would sup­port views that a sharp slow­down in com­pen­sa­tion growth in the sec­ond quar­ter and in con­sumer spend­ing in June were tem­po­rary. Wage growth has been dis­ap­point­ingly slow in re­cent months, but fall­ing un­em­ploy­ment and de­ci­sions by sev­eral state and lo­cal gov- ern­ments to raise min­i­mum wages have fu­eled ex­pec­ta­tions of a pickup.

In ad­di­tion, a num­ber of re­tail­ers, in­clud­ing Wal­mart, the na­tion's largest pri­vate em­ployer, Tar­get and TJX Cos have in­creased pay for hourly work­ers. The un­em­ploy­ment rate is forecast to hold steady at a seven-year low of 5.3 per­cent, near the 5.0 per­cent to 5.2 per­cent range most Fed of­fi­cials think is con­sis­tent with a steady but low level of in­fla­tion. But an ex­pected re­bound in the la­bor force par­tic­i­pa­tion rate, or in the share of workingage Amer­i­cans who are em­ployed or at least look­ing for a job, from a more than 37-1/2 year low could push it up.

A la­bor force drop that econ­o­mists pinned on a sea­sonal quirk ac­counted for a 0.2 per­cent­age point de­cline in the job­less rate in June. A good em­ploy­ment re­port would add to ro­bust July au­to­mo­bile sales and ser­vice in­dus­tries data by sug­gest­ing the econ­omy con­tin­ues to gather mo­men­tum af­ter grow­ing at a 2.3 per­cent an­nual rate in the sec­ond quar­ter. "We con­tinue to see signs that the U.S. econ­omy is slowly, but surely gain­ing trac­tion," said Bryan Jor­dan, deputy chief economist at Na­tion­wide in Colum­bus, Ohio. Em­ploy­ment gains in July are ex­pected to have been con­cen­trated in ser­vice in­dus­tries.

Con­struc­tion sec­tor pay­rolls likely rose also thanks to a strength­en­ing hous­ing mar­ket, and fac­tory em­ploy­ment will prob­a­bly get a lift as some au­tomak­ers have de­cided to forgo a usual sum­mer plant shut­down for re­tool­ing. But more lay­offs in the energy sec­tor, which is grap­pling with last year's more than 60 per­cent de­cline in crude oil prices, were prob­a­bly a drag on min­ing pay­rolls.

Oil­field giants Sch­lum­berger and Hal­libur­ton, two big oil ser­vice com­pa­nies that plan to merge, dis­closed last week that they had cut 27,000 jobs be­tween them this year. Nearly 50,000 energy jobs have been lost in the past three months on top of 100,000 em­ploy­ees laid off since oil prices started to tum­ble last au­tumn, ac­cord­ing to Graves & Co., a Hous­ton energy con­sul­tancy.

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