Private Payrolls Rise Steadily; Productivity Revised Up

Before you go, we thought you'd like these...
Before you go close icon
Inside A HireLive Retail Job Fair As Initial Jobless Claims Are Released
Luke Sharrett/Bloomberg via Getty Images
By Lucia Mutikani

WASHINGTON -- Private employers maintained a steady 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 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.

The ADP (ADP) report, which is jointly developed with Moody's Analytics, was published Wednesday ahead of the government's more comprehensive employment report to be released on Friday.

%VIRTUAL-pullquote-Businesses are still hiring, but it is not clear if Friday's report will give the Fed either an 'all-clear' or a 'let's go slow' signal.%"Businesses are still hiring, but it is not clear if Friday's report will give the Fed either an 'all-clear' or a 'let's go slow' signal," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

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 0.1 percentage point to a near 7½-year low of 5.2 percent. The August employment report will 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, U.S. 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.

The dollar rose against a basket of currencies, while prices for U.S. Treasury debt fell. Stocks on Wall Street rebounded from Tuesday's sharp losses.

Strong Domestic Activity

In August, manufacturing payrolls increased 7,000 after rising only 1,000 in July, the ADP report showed. The construction industry added 17,000 jobs in August on top of 15,000 jobs in July. Services industry employment increased by 173,000 jobs in August following a gain of 170,000 in July.

"Outside of manufacturing, the domestic activity data is very strong," said Paul Ashworth, chief U.S. 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 1½ 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.

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 to 2 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.

A third report from the Commerce Department new orders for U.S. 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.

-Chuck Mikolajczak contributed reporting from New York.

9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Private Payrolls Rise Steadily; Productivity Revised Up
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
Read Full Story

People are Reading