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Friday’s jobs report will be the first in a while that really puts the Federal Reserve on the spot.
As we approach one year since the first rate hike of this economic recovery, labor market data increasingly supports another one soon.
Via Bloomberg, here’s what Wall Street is expecting:
- Nonfarm payrolls: +180,000 Unemployment rate: 4.8% Average hourly earnings month-on-month: +0.2% Average hourly earnings year-on-year: +2.5% Average weekly hours worked: 34.5 Change in manufacturing payrolls: -4,000
The jobs reports for June and July were stunning, compared to what was expected. After the Verizon workers’ strike helped to plunge payrolls in May to a near-six-year low, June brought a strong rebound by 287,000, and July produced 255,000.
A third straight month like this could spike expectations that the Fed will raise rates later this month, and cement December as the base case for most forecasters. On Thursday, bets among futures traders reflected a 32% chance of a rate hike in September, and a 59% probability in December, according to Bloomberg.
In Jackson Hole last week, Fed chair Janet Yellen said the “continued solid performance of the labor market and our outlook for economic activity and inflation” strengthened the case for an increase in the fed funds rate.
The June and July jobs reports followed two soft months, making August a tiebreaker, according to Renaissance Macro’s Neil Dutta.
“If the August figure resembles the last two months, the Fed goes this month,” he wrote in a note on Thursday.
Dan North, chief economist at Euler Hermes North America, also sees a high bar before the Fed, but thinks a December move is most likely.
“It would have to be a really blockbuster report, much greater than expectations, to push the Fed into hiking rates in September,” he told Business Insider.
And history stands in the way of a great jobs report.
Since 2010, on average, the initial print of nonfarm payrolls for August has undershot expectations by the most for any month before being revised higher. That’s partly because of seasonal adjustment issues following the Great Recession.
Even though the Fed may take this into account, it would be hard to explain away, and would not make a compelling case for a rate hike, North said.
In addition to strong job gains, wage growth and hours worked would also need to be spectacular to move the Fed at its upcoming meeting, North said.
With the unemployment rate at an eight-year low, there are more job openings than people on the market with the skills to fill those roles.
This scarcity has created “a market for job seekers” and is putting upward pressure on wages, according to Ian Siegel, CEO of job listings site ZipRecruiter.
“It’s a great time to go find a job if you’re looking for an increase in compensation because employers are moving up” in benefits and salaries, he told Business Insider.
In July, average hourly earnings grew 2.6% year-on-year, matching the strongest gain since 2009.