Unemployment rate forecast to fall back to 18-year low of 3.8%

Bloomberg News/Landov

The number of new jobs created August is expected to rebound and knock the unemployment rate back down to an 18-year low, but even a disappointing report would do little to dampen the optimism about a scorching U.S. economy.

Unless, that is, wages show a surprising surge that sparks fresh worries about inflation. Here’s what to watch in Friday’s monthly employment report.

August rebound in the offing

The U.S. likely added about 200,000 new jobs in August, economists polled by MarketWatch predict. Employment gains totaled 157,000 in July in what was the second smallest increase in 2018.

Don’t be surprised if hiring is on the softer side again, though.

The preliminary August report often undercounts how many new jobs are created because so many people are on vacation. As a result, the number of respondents to the government’s regular questionnaire are initially very low.

Virtually every other economic indicator shows the U.S. growing strongly, however. Wall Street will take pretty much any employment number in stride. The Dow Jones Industrial Average DJIA, -0.23% and the S&P 500 SPX, -0.14% have both returned near record high.

Perhaps more surprising, the 10-year Treasury yield TMUBMUSD10Y, +1.97%has remained stuck below 3%, a sign that investors still aren’t worried about inflation despite a tight labor market. 

Unemployment keeps falling

The unemployment rate has tumbled to 3.9% from as high as 10% eight years ago as the economy has righted itself after the Great Recession of 2007-2009. Some 19.3 million jobs have been created since 2010 and layoffs are at their lowest level in nearly 50 years.

Read: Jobless claims fall to 203,000. They haven’t been this low since Dec. 6, 1969

Unemployment can go even lower, economists say. The jobless rate is forecast to dip to 3.8% in August, matching the post-recession bottom and touching a level not seen since early 2000.

If the rate falls to 3.7%, it would be the lowest mark since 1969. 

Worker pay is hard to figure

One of the biggest puzzles about the current expansion is why worker pay still isn’t rising very rapidly despite a booming labor market.

Hourly pay for the average American worker has climbed 2.7% in the past 12 months, Labor Department figures show. Economists predict little change in August.

Although hourly pay has sped up from around 2% a few years ago, it still falls well short of the 3% to 4% gains that typically prevail when the unemployment rate is so low.

The White House, for its part, contends worker compensation is actually is rising more rapidly than traditional government measures of wage growth show.

Kevin Hassett, one of President Trump’s chief economic aides, says those measures overstate inflation, don’t fully capture the expanding role of fringe benefits, ignore a shift in the labor force toward younger workers and fail to capture the benefits of the recent Trump tax cuts.

Read: Don’t believe stats showing zero gains for American workers, Trump White House says 

Early warning signs

Corporate chieftains and small-business owners alike sound like a broken record. They keep complaining they can’t find enough skilled workers to fill sky-high job openings. And lately they’ve been lamenting the role of Trump administration tariffs that have raised the cost of lumber and steel.

Read: Most U.S. companies grow at sizzling pace in August despite tariffs, ISM survey finds

If a tight labor market and the threat of a trade war are going to hurt the economy, the manufacturing and construction sectors should give off early warning signs.

So far neither have done so. Both industries have created more than 300,000 jobs in the past year. Manufacturers are doing better than builders, but no one’s complaining about a lack of business.

source: www.marketwatch.com