Jobs report set to seal September Fed hike, not future path
Lacklustre pay is among reasons why investors aren't fully convinced Fed will deliver its fourth 2018 hike in December
Washington
AN AUGUST rebound in US payrolls would all but cement a Federal Reserve interest-rate increase this month. Yet investors will probably retain doubts about another hike this year, barring a surprise acceleration in wages.
Employers added 198,000 workers last month after 157,000 in July, helping to trim the jobless rate to 3.8 per cent to match the lowest level since 1969, according to a Bloomberg survey ahead of Labor Department data due on Friday. Average hourly earnings likely rose 2.7 per cent from a year earlier for a third straight month, only slightly above the 2.5 per cent average in 2017.
While low unemployment and a solid economy mean a September interest-rate hike is a near lock, lacklustre pay is among reasons why investors aren't fully convinced the Fed will deliver on its outlook for a fourth 2018 hike in December. There's also an escalating trade war, turmoil in emerging markets and the risk that Fed rate increases will push short-term Treasury yields above long-term rates - the so-called yield-curve inversion that preceded previous recessions.
"The labour market is in a good place," and a solid advance in jobs would be "Goldilocks enough" to help seal a September interest-rate hike, said Michael Gapen, chief US economist at Barclays plc in New York and a former Fed economist. At the same time, given where investors stand on a December move, "markets would react very strongly to any indication that wage growth is picking up" and mark up odds of another rate rise before year-end, he said.
Markets are fully priced for a hike when policy makers gather on Sept 25-26, yet give just about a 70 per cent probability of another move in December. Futures traders are currently wagering for less than two hikes in 2019. The Fed's quarterly projections, seen as dots on a plot, indicate four total increases this year and three in 2019.
For now, the US economy and job market, juiced by President Donald Trump's tax-cut stimulus, look resilient to the risks from his administration's trade war. Weekly filings for unemployment benefits are the lowest in almost five decades, while the Institute for Supply Management's August manufacturing survey showed its index of employment climbed to a six-month high.
Economists project that factories added 24,000 workers in August, according to the median estimate, which would mark the 11th straight month of at least 20,000.
Data out Thursday from the ADP Research Institute suggested that hiring may have cooled last month. Businesses added a below-forecast 163,000 jobs in August, the least in almost a year, according to the report.
Despite robust demand for workers, pay gains have remained disappointing by many measures throughout the economic expansion that began in mid-2009. They've also become a contentious issue for Republicans and Democrats heading into mid-m congressional elections in November. BLOOMBERG
