WASHINGTON: US job growth likely slowed in August after two straight months of robust gains, but the pace of increase should be more than sufficient for the Federal Reserve to announce a plan to start trimming its massive bond portfolio.
According to a Reuters survey of economists, the Labor Department’s closely watched employment report on Friday will probably show that nonfarm payrolls increased by 180,000 jobs last month.
That would be close to the 184,000 monthly average employment gains for this year and far more than what is needed to keep up with growth in the work-age population.
While the job gains would clear the path for the US central bank to outline a plan to start shrinking its $4.2 trillion (SR15.75 trillion) portfolio of Treasury bonds and mortgage-backed securities at its Sept. 19-20 policy meeting, tepid wage growth could leave a December interest rate increase in doubt.
Average hourly earnings are forecast rising 0.2 percent after advancing 0.3 percent in June, likely keeping the year-on-year gain in wages at 2.5 percent for a fifth consecutive month.
Sluggish wage growth would come on the heels of a report on Thursday showing the Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, increased 1.4 percent in the 12 months to July — the smallest rise in just over 1-1/2 years.
“The job market is in very good shape, but wage growth is very disappointing and that’s likely to continue for over the next several months,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Whether or not the Fed moves in December will be contingent on inflation.”
US financial markets are pricing in a roughly 36 percent probability of a rate hike at the Fed’s December meeting according to CME Group’s FedWatch program. The Fed has increased borrowing costs twice this year.
Lack of strong wage growth would also raise concerns about the sustainability of a recent surge in consumer spending, which spurred the fastest economic growth in more than two years in the second quarter.
The expected deceleration in hiring last month, which follows back-to-back payroll increases of more than 200,000 in June and July, also reflects a shortage of qualified workers that has left employers unable to fill vacant positions.
“Given a dearth in labor supply, the typical seasonal influx of workers at the start of the summer may have resulted in more jobs than usual being filled and explain the relatively strong readings in June and July,” said Michelle Girard, chief economist at NatWest Markets in Stamford, Connecticut.
“By August, the added supply of labor was likely to have been absorbed, diminishing that boost to employment growth.”
According to a Reuters survey of economists, the Labor Department’s closely watched employment report on Friday will probably show that nonfarm payrolls increased by 180,000 jobs last month.
That would be close to the 184,000 monthly average employment gains for this year and far more than what is needed to keep up with growth in the work-age population.
While the job gains would clear the path for the US central bank to outline a plan to start shrinking its $4.2 trillion (SR15.75 trillion) portfolio of Treasury bonds and mortgage-backed securities at its Sept. 19-20 policy meeting, tepid wage growth could leave a December interest rate increase in doubt.
Average hourly earnings are forecast rising 0.2 percent after advancing 0.3 percent in June, likely keeping the year-on-year gain in wages at 2.5 percent for a fifth consecutive month.
Sluggish wage growth would come on the heels of a report on Thursday showing the Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, increased 1.4 percent in the 12 months to July — the smallest rise in just over 1-1/2 years.
“The job market is in very good shape, but wage growth is very disappointing and that’s likely to continue for over the next several months,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Whether or not the Fed moves in December will be contingent on inflation.”
US financial markets are pricing in a roughly 36 percent probability of a rate hike at the Fed’s December meeting according to CME Group’s FedWatch program. The Fed has increased borrowing costs twice this year.
Lack of strong wage growth would also raise concerns about the sustainability of a recent surge in consumer spending, which spurred the fastest economic growth in more than two years in the second quarter.
The expected deceleration in hiring last month, which follows back-to-back payroll increases of more than 200,000 in June and July, also reflects a shortage of qualified workers that has left employers unable to fill vacant positions.
“Given a dearth in labor supply, the typical seasonal influx of workers at the start of the summer may have resulted in more jobs than usual being filled and explain the relatively strong readings in June and July,” said Michelle Girard, chief economist at NatWest Markets in Stamford, Connecticut.
“By August, the added supply of labor was likely to have been absorbed, diminishing that boost to employment growth.”
