Private Payrolls Rise Steadily; Productivity Revised Up
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.