Jobs forecast: Solid but slowing
Payroll processor ADP’s report Wednesday that businesses added 179,000 jobs in July could signal that the Labor Department will say Friday that the U.S. logged a second consecutive month of solid employment gains. But it also underscores many economists’ belief that job growth is slowing.
Employers added a booming 287,000 jobs in June, Labor Department figures show, but that likely reflected pent-up demand after a meager 11,000 additions in May. In the first half of 2016, monthly job growth has averaged 171,000, well below the torrid 251,000 pace of 2014 and 229,000 last year.
Economists estimate Labor will announce Friday that 180,000 new jobs were created in July.
Friday’s employment report could be pivotal because it will be among the most significant economic data the Federal Reserve reviews before deciding whether to raise interest rates in September. The Fed lifted its benchmark rate in December for the first time in nearly a decade but has held it steady since.
After the government reported last week that the economy grew just 1.2% in the April-June period, the third consecutive quarter of feeble gains, it likely will take job gains that top 200,000 in both July and August, as well as an acceleration in wage growth, to prod a cautious Fed to act in September, says Gus Faucher, deputy chief economist of PNC Financial Services Group.
Over the next few months employment data will reveal whether the volatile payroll counts early in the year stemmed from quirks such as warm winter weather and market turbulence or whether the trend has downshifted for the longer term, as many economists believe.
“We’re transitioning to a more sustainable pace of job growth,” Faucher says.
That’s not a bad thing. With unemployment at 4.9%, there are simply fewer available workers to fill job openings that remain just modestly below record levels. The tight labor market is expected to continue to push up average annual pay increases that reached 2.6% in June after hovering around 2% for most of the recovery — a positive for consumer spending and economic growth.
Economist Paul Ashworth of Capital Economics looks for average monthly job gains of about 170,000 during the second half of the year.
That’s well above the 100,000 or so monthly job gains needed to continue to keep up with population growth and lower the unemployment rate, says Jim O’Sullivan, chief U.S. economist of High Frequency Economics. But he believes job growth at least partly has been dampened by the effects of a weak global economy and an oil industry slump that has rippled to other sectors. That suggests monthly gains could pick up again if those sectors improve.