July jobs should show steady hiring after crazy May and June reports

Economists expect a solid 180,000 jobs were created in July and that wages rose modestly, following two months this spring where it looked as though hiring went from bust to boom.

The forecast is close to the average 172,000 job growth of the past six months, but under the 200,000 rate of the past year. June nonfarm payrolls were 287,000 following a stunningly low May report of just 11,000 jobs. Some of that was blamed on the 40,000 striking Verizon workers during May and their return to work in June.

"I think the underlying pace is pretty close to what we've seen so far this year. We're looking a little better this month," said Samuel Coffin, an economist at UBS.

Coffin said the fact that auto makers are not retooling as much as they usually do in the summer should help manufacturing jobs in the report. He expects 190,000 jobs in total, and 180,000 private sector jobs. But he expects the pace of private sector payrolls after July to return to closer to the trend of 158,000, which is the average for private sector hiring year to date.

The unemployment rate is expected to fall to 4.8 percent from 4.9 percent, according to Reuters. Average hourly wages are expected to have risen by 0.2 percent, up 0.1 percent from June. That would be a pace of 2.5 percent annually, a rate that has been slowly rising.

The jobs report comes a week after second-quarter GDP growth came up short. Second-quarter growth of just 1.2 percent was less than half of what was expected and stirred concern that the May report could perhaps be signaling labor weakness. It also has implications for the expectations for Fed rate hikes, which the market now gives low odds of happening this year.

But economists expect to see signs that the labor market is solid when the July report is released at 8:30 a.m. EDT Friday.

Goldman Sachs economists, forecasting 190,000 jobs, see jobless claims as an important sign the labor market remains healthy. The four-week moving average of claims fell 9,000 in July to 259,000 and during the survey week for the employment report were at a low 252,000.

They also point to data from The Conference Board that shows more consumers who say jobs are plentiful versus hard to get. That labor differential moved back to positive territory in July, rising 1.2 points to 0.7 percent.

Coffin said he expects that some of the weakness in May could also be the result of weather, which was unusually warm during the winter months.

"There had been this very warm Q4/Q1, and Q2 employment in the weather-sensitive areas was probably held back because of that. They were hired early, not laid off. … They either stayed at work through the winter or they came back to work a little earlier at the end of the winter," said Coffin.

He said besides the Verizon workers, some of the surge in June's report was from an unusual amount of hiring in some areas that could be seasonal, like 20,000 workers in arts, entertainment and recreation. Leisure and hospitality was also a strong area.

Mark Zandi, chief economist at Moody's Analytics, said he's not expecting to see the roller coaster ride of the last couple of reports cleared up in Friday's numbers. "I'm sure it will create its own riddles. It always does," he said.

He expects to see 189,000 payrolls, and wage growth of 0.3 percent, or 2.6 percent on an annual basis.

"I think it's going to be a solid report. I think broad-based growth across industries. Energy will still be laying off. Manufacturing will be flat. Otherwise, I expect a solid report. I expect to see solid growth in health care, professional services, leisure and hospitality," said Zandi.

But he also expects to see a slower trend of hiring, as the economy nears full employment. "It will be pretty hard for businesses to fill some positions," he said.

Deloitte Global COO Frank Friedman said he is not seeing a slowdown in hiring. But he does see some areas where demand is greater than the qualified workers available.

"In the areas you want to hire, around technology … the new innovative technologies, health care, in those areas you want to hire, it might be problematic," he said.

"Health care continues to be very strong in terms of hiring, and leisure and hospitality. The areas that have struggled are mining, construction and manufacturing," Friedman said.