Fed likely to cast a keen eye on jobs report
Big gains could lead to hike in interest rates sooner rather than later, some economists say
Friday’s jobs report is shaping up to be among the most pivotal in recent memory, with economists predicting strong gains could nudge the Federal Reserve into raising interest rates in September for the first time this year.
The key question: How strong does the tally need to be?
Payroll processor ADP, which does its own survey, said Wednesday businesses added 177,000 jobs in August. Economists expect the Labor Department on Friday to report 180,000 additional jobs in the public and private sectors. That would be a solid total but below the booming 273,000 average in June and July.
Before that, the labor market stumbled with two unusually weak months. So far this year, monthly job growth has averaged 186,000, down from 229,000 in 2015, a downshift many economists trace to a 4.9% jobless rate that’s supplying employers with fewer available workers.
But with inflation still below the Fed’s target and the economy turning in meager 1% growth or so for the third consecutive quarter in the April-June period, economist Paul Ashworth of Capital Economics says payroll gains will need to top 250,000 to convince a cautious Fed to seriously consider lifting rates at its Sept. 20-21 meeting.
“I get the sense it needs to be a blowout,” he says, adding he believes a December move is more likely. Fed fund futures are placing just 27% odds on a September move and 44% on December.
Barclays economist Rob Martin doesn’t think the bar is that high. He says gains of 200,000 or more would be enough to coax the Fed, and even a count of at least 150,000 could do the trick if other survey indicators are positive, such as a falling unemployment rate. The concern: The tight labor market will start to push up wages and prices, forcing the Fed to eventually use higher rates to head off excessive inflation.
Like Ashworth, Martin predicts the Fed will boost its key rate once this year. But he believes policymakers would prefer to act after three consecutive months of healthy job gains than wait until late in 2016, when bad economic news could stay their hand.
In a speech last week, Fed Chair Janet Yellen said the case for a rate increase “has strengthened” but avoided any timetable. She thus provided ammunition to economists betting both on and against a September move.
Further complicating the picture: The past five years, Labor has underestimated August job gains by an average 62,000, based on subsequent revisions, notes Jim O’Sullivan of High Frequency Economics. That hasn’t impacted ADP’s August figures, which averaged 63,000 more than Labor’s over the period, O’Sullivan says.
The Justice Department’s action comes amid a flurry of mergers and acquisitions in the agricultural industry, potentially signaling greater antitrust scrutiny to come, even as the sector sags amid declining crop prices.
“If this deal were allowed to proceed, Deere would dominate the market for high-speed precision-planting systems and be able to raise prices and slow innovation at the expense of American farmers who rely on these systems,” Renata Hesse, acting assistant attorney general of Justice’s antitrust division, said in a statement.
Though Precision Planting ’s 2015 sales were about $100 million, antitrust officials said the tech will “become the industry standard in the coming years,” replacing conventional planters.
Deere and Monsanto pledged to fight the lawsuit, saying the deal will increase the availability of the technology and that competition is “strong and growing.”
Deere stock closed down 1.3% Wednesday to $84.55, and Monsanto fell 0.9% to $106.52.