Another round of solid hiring gains in July won’t guarantee that the Federal Reserve will raise interest rates next month — but a good number could set the oven to preheat.
Even if job creation falls short in July and wages don’t budge, however, the Fed is unlikely to take a chill pill unless the economy takes a dramatic turn for the worse. So far there’s no sign of that.
The U.S. is expected to show 220,000 new nonfarm jobs in July when the government on Friday issues the employment report, according to economists polled by MarketWatch. That would fall below June’s preliminary 223,000 reading, but be slightly above the 208,000 average in the first six months of the year.
The midyear jobs report is one of the hardest to adjust for season hiring patterns because of large shifts in employment in the auto industry and education, among other things. Reported job creation in July is the second weakest of any month since the recovery began more than six years ago. And employment growth during the month has undershot the annual average since 2010.
The unemployment rate seems very low at just 5.3% and economists expect it to remain there. But the official rate leaves out nearly 17 million people who’ve either gotten too discouraged to look for work or who can only find part-time jobs.
In June, for example, the broader U6 jobless rate that includes “involuntary” part-timers and discouraged workers stood at 10.5%. While it’s been falling steadily, the rate is sharply higher compared to the 8.4% average that prevailed shortly before the Great Recession.
The Fed said it wants to see “some further improvement” in the labor market before raising a key short-term interest rate, now near zero, for the first time since 2006. A U6 rate tumbling toward 10% or below would be one such sign.