America’s jobs engine keeps defying forecasts for 2017 slowdown
August payrolls may have grown by as much as 200,000
In an economy growing at a moderate pace at best, the U.S. job market keeps on shining.
Payroll gains topped forecasts in five of the past seven months, putting the 2017 average increase of 184,000 almost on par with last year’s 187,000 and above levels typical for the eight-year expansion. Analysts expect barely any falloff from that pace in August figures due Friday, amounting to job growth about double what’s needed to keep the unemployment rate steady in the longer run.
Sustained demand for workers — highlighted by record vacancies — is pushing down unemployment and even attracting Americans who weren’t actively looking for a job. What’s more, the strong run of hiring challenges a widespread assumption in forecasts late last year: that the economy would run low on workers as it approached so-called full employment, causing payrolls to downshift.
A confluence of reasons helps explain the outperformance, including steady consumer spending; bullish business sentiment on hopes President Donald Trump will cut taxes and boost growth; stabilization in oil prices; and improving export markets. Moreover, weak wage gains suggest employers are adding workers instead of investing in technology, something reflected in sluggish productivity. Recent hiring has been driven by typically low-paying industries such as restaurants, home health-care services and leisure.
“There is enough supply of labor to keep hiring growing at a fairly robust pace,” said Michael Gapen, Barclays Plc’s chief U.S. economist, who projects payrolls grew 200,000 in August. There’s also still plenty of demand for workers in this “slow but super-durable expansion,” he said.
Employment probably rose by 180,000 this month after 209,000 in July, according to the median estimate in a Bloomberg survey ahead of the Labor Department’s data. One caveat: August employment tends to come in below expectations due to difficulty adjusting data for the new school year. In the initial report, August hiring missed expectations each of the past six years, only to be revised upward in five of those.
The Bloomberg survey projects the August jobless rate held at a 16-year low of 4.3 percent. The data also won’t show any fallout from Harvey, as the Labor Department’s payrolls survey week — which includes the 12th of a given month — closed before the hurricane hit Houston on Aug. 25.
Former Federal Reserve Vice Chairman Alan Blinder said in an interview this month he was convinced in January that one of the Trump administration’s early public-relations problems “was going to be a decline in job creation because we couldn’t keep up at 180, 190,000 a month. But we have.”
Gapen expects monthly job gains of about 175,000 through next year, pointing out that in the past few expansions, the unemployment rate kept declining while payrolls remained healthy until the economy began slipping into a recession. So any weakness in employment was more to do with the end of the economic cycle than a sign there weren’t any workers left to hire, he said.
Jobless claims near the lowest level since 1973 indicate employers need to retain workers, said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. The trend in payrolls would weaken significantly if financial conditions tighten meaningfully as the Fed raises interest rates, he said, though the “financial backdrop remains highly accommodative” by most measures. He sees monthly hiring of around 170,000 for the rest of 2017, cooling only gradually thereafter instead of abruptly reaching 100,000.
“It’s not as if hiring should suddenly hit a wall just because we’re at full employment or thereabouts,” said O’Sullivan, the top-ranked payrolls forecaster in data compiled by Bloomberg. “The labor market is tight but it’s not incredibly tight.” Otherwise, “we’d be seeing more strength in wages.”
The Bloomberg survey median shows average hourly earnings rose 0.2 percent from July, and 2.6 percent from a year earlier. That would be up from 2.5 percent in July, though below the expansion high of 2.9 percent from December 2016.
A sustained acceleration in worker pay will probably take time. After all, it’s only been a few months since the jobless rate reached the 4.6 percent level consistent with the Fed’s maximum-employment goal, O’Sullivan said.
As for which industries should see job growth, he expects mining and manufacturing employment to improve this year while Amazon.com Inc.’s impact will hurt retail jobs.
Health-care and professional services are also easy bets for job gains, said Omair Sharif, senior U.S. economist at Societe Generale. Most analysts say broad-based hiring backed by resilient economic growth will keep depressing the unemployment rate, a scenario in sync with gradual rate hikes by the Fed.
“The economy is still punching above its potential,” said Sharif, who sees monthly payrolls rising an average of 175,000 through year-end. “Strong demand for workers and a tightening of the labor supply haven’t abated.”
Bur there’s always hope for more. “Acceleration in wage growth would be great,” he said.
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