WASHINGTON – U.S. job growth likely picked up in August, with the unemployment rate forecast to have dropped to 4.2%, which would offer more assurance that an orderly labor market slowdown remained intact and cement expectations of a quarter-point interest rate cut from the Federal Reserve this month.
The Labor Department’s closely watched employment report on Friday would add to solid consumer spending in dispelling financial market fears of a recession, which were stoked by a rise in the jobless rate to a near three-year high of 4.3% in July. The fourth straight monthly increase in the unemployment rate put a 50 basis point rate cut on the table.
“The economy is going through a transition; it’s slowly kind of bending under the weight of the high interest rates,” said Brian Bethune, an economics professor at Boston College. “There is sufficient evidence to support a sequence of 25 basis points rate cuts so far, but not a hurried 50 basis points.”
Nonfarm payrolls likely increased by 160,000 jobs last month, according to a Reuters survey of economists. Payrolls rose by 114,000 in July, which was the second smallest gain this year. Estimates ranged from 100,000 to 245,000 jobs. The slowdown in the labor market mostly reflects a step-down in hiring rather than layoffs, which remain at historic low levels.
A surge in immigration, which is partly blamed for the jump in the unemployment rate from a five-decade low of 3.4% in April 2023, now means the economy needs to create between 175,000 and 200,000 jobs per month to keep up with growth in the working-age population. A modest rebound in employment is expected in sectors that were held back by Hurricane Beryl in July.
Though the Labor Department’s Bureau of Labor Statistics (BLS), which compiles the employment report said Beryl had “no discernible effect” on the data, 436,000 people reported that they could not report to work because of bad weather, the highest on record for July. Economists argued that the BLS statement referred to the collection of data.
“There were plenty of signs that Beryl weighed on the job market in July, including a rise in the number of people either not at work or worked only part-time hours due to adverse weather, a jump in the number of people reporting that they were on temporary layoff, and hits to hours worked in construction and mining,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.
But August payrolls have a tendency to initially print weaker relative to the consensus estimate and recent trend before being revised higher later.
Hiring tends to pick up in the education sector, which is anticipated by the model that the government uses to strip out seasonal fluctuations from the data.
However, the start of the new school year varies across the country, which can throw off the so-called seasonal factors. The initial August payrolls counts have been revised higher in 10 of the last 13 years, economists noted.
“Disappointing August employment data have in the past influenced Fed interest rate decisions at the September meetings,” said Conrad DeQuadros, senior economic advisor at Brean Capital. “With the benefit of hindsight, allowing August payroll prints to influence September policy decisions appears to have been a mistake.”
SOLID WAGE GROWTH ANTICIPATED
As of Thursday afternoon, financial markets saw a roughly 41% probability of a half-point rate cut at the Fed’s September 17-18 policy meeting, according to CME Group’s FedWatch Tool. The odds of a 25 basis point rate reduction were around 60%.
Last month, the government estimated that employment gains were overstated by 68,000 jobs per month in the 12 months through March, exacerbating concerns over the labor market. However, some economists cautioned against viewing the benchmark revision as a sign that the labor market was in trouble, arguing that a surge in immigrants was a key factor.
The Quarterly Census of Employment and Wages (QCEW) data from which the government based the payrolls benchmark revision estimate does not include undocumented immigrants, a group that economists believe contributed to strong job growth last year.
Business formations have gone down after surging during the pandemic, also accounting for the downward revision.
The BLS on Wednesday upgraded its previous estimates of payroll jobs from the QCEW through the fourth quarter of 2023.
“Based on the revisions, we think the initial QCEW estimate of the level of employment in March 2024 will be marked up by about 250,000,” said Jonathan Millar, senior economist at Barclays. “This would correspond to a downward benchmark revision of about 568,000, or nearly 50,000 jobs per month.”
Average hourly earnings are forecast to have increased 0.3% in August after gaining 0.2% in July. That would lift the year-on-year increase in wages to 3.7% from 3.6% in July.
Still-solid wage growth continues to underpin the economy through consumer spending. The average workweek is expected to have ticked up to 34.3 hours from 34.2 in July. However, Storm Debby poses a downside risk to this forecast.
(Source: Reuters)
