Jobs report seems to seal Fed hike at next meeting

Employers added 198,000 workers last month after 157,000 in July, helping to trim the jobless rate to 3.8 percent to match the lowest level since 1969, according to a Bloomberg survey ahead of Labor Department data due Friday. Average hourly earnings likely rose 2.7 percent from a year earlier for a third straight month, only slightly above the 2.5 percent average in 2017.

While low unemployment and a solid economy mean a September interest-rate hike by the Federal Reserve is a near lock, lackluster pay is among reasons why investors aren’t fully convinced the Fed will deliver on its outlook for a fourth 2018 hike in December. There’s also an escalating trade war, turmoil in emerging markets and the risk that Fed rate increases will push shortterm Treasury yields above longterm rates — the so-called yield-curve inversion that preceded previous recessions.

“The labor market is in a good place,” and a solid advance in jobs would be “Goldilocks enough” to help seal a September interest-rate hike, said Michael Gapen, chief U.S. economist at Barclays Plc in New York and a former Fed economist. At the same time, given where investors stand on a December move, “markets would react very strongly to any indication that wage growth is picking up” and mark up odds of another rate rise before year-end, he said.

Markets are fully priced for a hike when policymakers gather Sept. 25-26, yet give just about a 70 percent probability of another move in December. Futures traders are currently wagering for less than two hikes in 2019. The Fed’s quarterly projections, seen as dots on a plot, indicate four total increases this year and three in 2019.

For now, the U.S. economy and job market, juiced by President Donald Trump’s tax-cut stimulus, look resistant to the risks from his administration’s trade war. Weekly filings for unemployment benefits are the lowest in almost five decades, while the Institute for Supply Management’s August manufacturing survey showed its index of employment climbed to a six-month high.

Economists project that factories added 24,000 workers in August, according to the median estimate, which would mark the 11th straight month of at least 20,000.

Data out Thursday from the ADP Research Institute suggested that hiring may have cooled last month. Businesses added a below-forecast 163,000 jobs in August, the least in almost a year, according to the report.

August payrolls may benefit from a fading of some transitory factors. Store closings at Toys R Us imposed a drag in July, one reason why the category representing sporting goods, hobby, book and music stores lost 31,800 jobs, the biggest decline in data back to 1990.

Economists also expect a rebound in local-government education payrolls, which tend to be volatile in the summer and fell in July.

Despite robust demand for workers, pay gains have remained disappointing by many measures throughout the economic expansion that began in mid-2009.

They’ve also become a contentious issue for Republicans and Democrats heading into midterm congressional elections in November.

ANDREW HARRER / BLOOMBERG The Federal Reserve is likely to raise interest rates later this month, but that might be the last hike of the year.