Most private employers in US are hiring, but is it too soon to raise interest rates?
A report released on Wednesday found increases in job growth for August in all sectors except the energy industry, though concerns remain about the impact of a global stock market downturn.
US private employers maintained a solid pace of hiring in August despite recent global financial market turmoil, suggesting that labor market momentum likely remains strong enough for the Federal Reserve to consider an interest rate hike this year.
The ADP National Employment Report on Wednesday showed private payrolls increased 190,000 last month. While that was below economists' expectations for a gain of 201,000 jobs, it was a step-up from the 177,000 positions created in July.
"Job growth remains strong and broad-based, except in the energy industry, which continues to shed jobs," said Mark Zandi, chief economist of Moody's Analytics in West Chester, Pennsylvania.
The ADP report, which is jointly developed with Moody's Analytics, was published ahead of the government's more comprehensive employment report to be released on Friday.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 220,000 jobs in August after rising 215,000 in July. There is, however, a risk of a weaker number as the first print of August payrolls has tended to be weaker in the last several years before being revised higher.
But some economists were encouraged by the ADP report, which showed job gains in all sectors, except in the energy industry.
"ADP does not show the same initial under-reporting bias in the initial release of the August data as payroll data from the (government) appear to display," said John Ryding, chief economist at RDQ Economics in New York.
"This apparent consistent trend in ADP payroll gains would reassure us that the trend in employment was little changed in August in the event that payroll growth drops noticeably below 200,000 in Friday's report."
The unemployment rate is forecast to tick down to 5.2 percent from 5.3 percent in July. The August employment report would be released less than two weeks before the Fed's Sept. 16-17 policy meeting.
The chances of an interest rate hike this month have been diminished by a global stock market sell-off in the wake of poor economic data from China. In, addition, US factory activity slowed to a more than two-year low in August, with some economists citing the financial markets turbulence as a factor.
However, Fed Vice Chairman Stanley Fischer told CNBC last week it was too early to decide whether the stock market rout had made a rate hike this month less compelling.
Prices for US Treasury debt were trading lower, while the dollar was at session highs.
Strong Domestic Activity
"Outside of manufacturing, the domestic activity data is very strong," said Paul Ashworth, chief US economist at Capital Economics in Toronto. "But Fed officials are clearly worried about an economic slowdown in China, commodity prices are lower, and there is little evidence of any marked pick-up in either wage growth or core inflation."
In a second report, the Labor Department said nonfarm productivity increased at its strongest pace in 1-1/2 years in the second quarter, keeping wage inflation subdued for now.
The government revised productivity to show it rising at a 3.3 percent annual rate, the quickest since the fourth quarter of 2013, instead of the 1.3 percent pace reported last month.
Economists had forecast productivity, which measures hourly output per worker, being revised up to a 2.8 percent annual growth pace. Productivity contracted at a 1.1 percent rate in the first quarter.
The government last week revised second-quarter gross domestic product to show GDP expanding at a 3.7 percent annual pace instead of the 2.3 percent rate it had initially estimated.
But the trend in productivity remains weak. Productivity rose 0.7 percent from a year ago instead of the 0.3 percent increase reported last month.
Growth in productivity is an important determinant of the economy's non-inflationary speed limit.
Though the second-quarter bounce back is dampening wage pressure for now, the weak trend in productivity suggests the economy's growth potential could be lower than the 1.5 percent to 2.0 percent pace that economists have been estimating.
That would imply the spare capacity in the economy is being squeezed out more quickly than thought and that inflation pressures may take hold a little bit faster than had been anticipated.
Unit labor costs, the price of labor per single unit of output, fell at a 1.4 percent rate in the second quarter, rather than increasing at a 0.5 percent rate as previously reported.
Unit labor costs rose 1.7 percent compared to the second quarter of 2014. They increased at a 2.6 percent rate in the first quarter.
A third report from the Commerce Department showed new orders for US factory goods rose for a second straight month in July on strong demand for automobiles, which could help to keep manufacturing supported as it deals with the buoyant dollar and softening global demand.