Economic Indicators

US Employment Expected to have Grown in July

July’s employment report is widely expected to show firm job growth of 190,000.  However, wage growth is also expected to be lackluster at about the same pace as during the last quarter.

US July employment expected to grow

The unemployment rate is anticipated to improve to 3.9 percent from 4 percent.  Average hourly wages are seen to grow by 0.3 percent, or 2.7 percent on a year-over-year basis.   Last June, 213,000 non-farm payrolls were created, while average wages increased by 0.2 percent or 2.7 percent year over year.

There have also been some hints of wage growth, though economists still expect some choppiness.  A number of other data is also improving.  For one, the employment cost index for the second quarter showed 0.6 percent gain for civilian workers.  The 12-month rate is currently at 2.8 percent, which is so far the best rate since the third quarter of 2008.

Stephen Stanley, who is the chief economist at Amherst Pierpont, says that the NFIB small business survey shows an increase in wages and also in compensation plans for the next six months, both of the figures are near all-time highs in the data, which goes as far back as 1984.

On the other hand, economists are on the lookout for a pickup to a 3 percent or better pace in the average hourly wage data.  This would be a healthier gain and a sign of coming inflation.

The markets are keeping very close tabs on the wage data.  This is because a more robust rate of growth could tell the Fed that it needs to stay on its interest rate hiking path or even speed it up, if the wage growth on a higher level can be sustained.

“Unless we get a nice outlier number of 0.5, you’re not going to move much year-over-year on wage gains.  I think there are some hurdles to get there.  We need a big surge in manufacturing and higher paid jobs to get there,” stated Diane Swonk, who is chief economist at Grant Thornton.   “I think we’re going to see the surge in health and leisure and hospitality… there’s been a change in the composition of jobs.  We have a lot of lower wage gobs that were generated in the US economy.”

Swonk also added, “We would love to see 3 percent sustained.  Historically, 3 percent sustained should get you to 2 percent inflation sustained.”

For the July report, Goldman Sachs and JP Morgan economists predict a lower than consensus 0.2 percent increase, or a year-over-year pickup of 2.6 percent in average hourly wages.  Goldman attributes this to the calendar effects on the July data.

Stanley also remarks that during the past eight months, average hourly wages have exhibited monthly gains of less than 0.2 percent once, around 0.2 percent three times, and 0.3 percent or higher four times.

“I think we’ll touch 3 percent before the end of this year but we may not move above 3 percent on a persistent basis until next year,” said Stanley.  He also added that one risk to his view is the uncertain impact of the Trump administration’s trade policy and tariffs.

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