Faster U.S. job gains expected, may spur Fed to cut stimulus

Reuters

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job creation probably picked up in August, signaling a steady pace of economic growth that would give the Federal Reserve ammunition to start scaling back its massive monetary stimulus this month.

Employers are expected to have added 180,000 jobs to payrolls last month after creating 162,000 in July, according to a Reuters survey of economists. The unemployment rate is seen steady at a 4-1/2-year low of 7.4 percent.

The closely watched jobs report from the U.S. Labor Department on Friday will provide a crucial piece of evidence for the Fed as it debates the future of its $85 billion per month bond-buying program, and it will set the tone for global financial markets.

Policymakers from the U.S. central bank meet on September 17-18 and are widely expected to turn down the dial on the purchases they have been making to keep interest rates low and boost growth.

Fed officials have made clear that they would base their decision on the progress the labor market has made since they launched their third round of 'quantitative easing' a year ago. When they pulled the trigger, they were looking at a jobless rate that stood at 8.1 percent.

"You will have to have very poor employment data to really have the Fed delaying tapering. We think that anything above 140,000 will be sufficient for the Fed to taper ... We look not only for confirmation that they are going to taper but also the size of the tapering," said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York.

If economists' forecasts are correct, the employment report would suggest the economy remained on a steady growth path despite stumbling early in the third quarter.

Weak July data on consumer spending, home building, new home sales, durable goods orders and industrial production had fanned fears about growth. But those concerns eased this week with reports of solid automobile sales in August, strong services sector growth and a steady expansion at the nation's factories.

"As long as we don't see a clunker, we can take comfort that the economy, while not generating as many jobs as we would like, is going in the right direction," said Robert Dye, chief economist at Comerica in Dallas.

LABOR MARKET IMPROVING

The economy grew at a 2.5 percent annual pace in the April-June period, a pace that is usually considered sufficient to push down the unemployment rate slightly. Many economists expect an acceleration in momentum in the second half of the year.

A gauge of service sector employment released on Thursday hit a six-month high in August, suggesting the possibility of an upside surprise in Friday's report.

Signs of improvement in labor market conditions have also been evident in the decline in the number of Americans filing new applications for jobless benefits to near five-year lows.

That better outlook will probably make some people who had given up the hunt for work a bit more confident to rejoin the labor force, which would slow the pace at which the unemployment rate might drop.

Declines in the participation rate - the share of working-age Americans who either have a job or are looking for one - to 34-year lows have accounted for much of the decrease in the unemployment rate from a peak of 10 percent in October 2009.

Standard Chartered Bank's Costerg said he expected the participation rate to stabilize. "So, the unemployment rate would continue to trend down in the coming months, but probably at a slower rate," he said.

Other details of the employment report are expected to be fairly encouraging, with an anticipated bounce in average hourly earnings and the length of the average workweek, which both slipped in July.

Average hourly earnings are forecast to rise 0.2 percent after dipping 0.1 percent in July. That decline was largely dismissed as payback for a hefty increase in June.

The length of the workweek was expected to rise back to an average of 34.5 hours from a six-month low of 34.4 in July. The drop has been blamed on employers shifting some positions to part-time in an attempt to curb costs they might face under the Affordable Care Act.

"There is a lot of uncertainty around the Affordable Care Act," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "There is no clear consensus on how that is impacting the numbers, but that's something to keep an eye on."

Last month, the private sector probably accounted for all the anticipated job gains, with government payrolls expected to be unchanged. Factory employment is expected to have increased for a second straight month but any gains will probably be small as employers instead increase hours for existing workers.

Construction payrolls likely fell again in August. Another month of strong job gains is expected in the retail sector, with leisure and hospitality employment also seen solid.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)

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