Friday’s jobs report will be key to Fed’s rate-hike plans
The monthly jobs report will get even more attention this week as the Federal Reserve nears an expected interest rate hike in December. The October jobs survey highlights a flood of economic news that also includes reports on consumer spending, manufacturing and service-sector activity.
Consumers took a break in August after splurging in previous months, leaving consumption flat. But retail sales picked up sharply last month on strong vehicle purchases. And brisk activity at restaurants and bars likely offset sluggish demand for utilities, says Nomura economist Lewis Alexander. Economists estimate the Commerce Department will report Monday that consumer spending grew a healthy 0.4% in September.
On Tuesday, the Institute for Supply Management releases its index of manufacturing activity. Factories have struggled since 2014 as a strong dollar made U.S. shipments pricey for overseas buyers and the oil downturn hammered drilling-related investment. With oil prices partly rebounding and the dollar leveling off, manufacturers have stabilized. In September, factory activity bounced back with a modest pickup after a slight contraction the previous month. Economists reckon ISM will record similar growth for October.
The Fed meets Wednesday, but with the election just six days later, no one’s expecting a rate hike. A divided Fed voted to hold its key rate steady last month and indicated it intends to lift it by year’s end for the first time in 2016. Yet a surprise rate increase this week could drive down stocks, affecting Americans’ view of the economy and of the candidates. Plus, with the 5% unemployment rate and rising wages, Fed Chair Janet Yellen said the “economy has a little more room to run,” and she doesn’t want to put up a roadblock just yet. Look for signals in the Fed’s post-meeting statement that a rate hike is coming in December.
The service sector has been humming. ISM’s activity index posted the fastest pace of growth in nearly a year last month. Economists expect ISM on Thursday to announce just a modest pullback in October’s expansion.
Owing to the vibrant service sector, job growth has been solid this year. Last month, employers added 156,000 jobs. Layoffs by manufacturers and oil companies are partly to blame. But the 5% unemployment rate also has left fewer available workers, making it harder for employers to find job candidates. Economists estimate the Labor Department will report
Friday the economy added 165,000 jobs in October, while the unemployment rate fell to 4.9%.
Janet Yellen has said that the “economy has a little more room to run,” and she doesn’t want to put up a roadblock just yet.