U.S. job growth likely slowed in August; wages seen tepid
U.S. 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 jobslast 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 U.S. central bank to outline a plan to start shrinking its $4.2 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."
U.S. 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.
SKILLS SHORTAGE
"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."
Payroll gains could surprise on the downside. Over the last several years, the initial August job count has tended to underestimate employment growth because of seasonal factors.
They could also beat expectations as online retailer Amazon.com held a series of job fairs to hire about 50,000 workers last month. No impact is expected from Hurricane Harvey, which devastated parts of Texas, as the disaster happened after the survey period for the Augustjobs report.
The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population. The unemployment rate is forecast holding steady at 4.3 percent. It has dropped five-tenths of a percentage point this year and matches the most recent Fed median forecast for 2017.
The labor market has continued to strengthen even as hopes for a promised tax cut this year have faded.
Republican President Donald Trump on Wednesday reiterated his longstanding call for slashing the U.S. corporate tax rate to 15 percent from 35 percent at a time when lawmakers believe they could be lucky to bring it down to 25 percent.
The Republican-led U.S. Congress faces a tough challenge in passing tax reform legislation, having already failed to deliver on healthcare reform sought by Trump.
The private services sector likely led the moderation in job growth last month. Retail employment probably fell after two straight monthly gains.
Manufacturing payrolls are forecast increasing by 9,000 jobs. But employment in the automobile sector probably fell after a surprise increase in July. Motor vehicle manufacturers are cutting back on production to cope with slowing sales.
Further job gains are likely in construction, despite a lull in homebuilding activity and home sales.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)