Market Insider

Job growth in August expected to be solid; wages may be the surprise

Key Points
  • Employers were expected to have created 180,000 jobs in August, off from 209,000 in July.
  • The unemployment rate is expected to remain at 4.3 percent and wages were expected to have risen 0.2 percent, or 2.6 percent year over year, according to Thomson Reuters.
  • Some economists are expecting to see a bigger-than-consensus pickup in wages, while others are concerned that August has set a pattern of weak payrolls reports.
Larry Kudlow: Trump makes powerful argument for growth, jobs, wages

Some economists expect to see wage gains surprise to the upside when the August jobs report is released Friday.

The economy is expected to have added a solid 180,000 jobs in August, down from 209,000 in July. The consensus forecast is for an increase in hourly wages of 0.2 percent, or 2.6 percent year over year, according to Thomson Reuters. Unemployment is expected to remain at 4.3 percent.

Barclays chief U.S. economist Michael Gapen expects 200,000 non-farm payrolls were added in August, with wages rising by 2.7 percent. Wages, like inflation, have been showing disappointing weakness this year.

"I don't think 2.4 or 2.5 on wages year on year is right. I think where we were a few months ago, at 2.7, is accurate," said Gapen.

Steve Rick, chief economist at CUNA Mutual Group, also expects the wages to look better than the consensus forecast.

"I think wages are finally going to break out of that 2.5 percent band we've been in," said Rick. He said he expects to see a 2.7 or 2.8 percent improvement.

"All over the country, the No. 1 concern I'm hearing is they can't find qualified employees so they're all having to raise wages to keep their employees from jumping ship. Wage pressures are really on the minds of employers," said Rick.

Trump: We will export our goods, not our jobs

Rick said he expects to see 180,000 payrolls were added in August. "The labor market is just so tight out there. The unemployment rate could tick down to 4.2 from 4.3 percent," he said.

Cathy Barrera, chief economic advisor for the online jobs platform ZipRecruiter, is also watching wages but for the lowest paid workers. "When the lower quartile sees a bump in their wages or goes from being unemployed to being employed, that's when you see the biggest boost in consumer spending," she said.

Barrera is also watching the demographics of who is finding jobs. The group that lags the most is 16-to-24-year-olds.

"The younger demographic has been 5 percent below where they were in 2008. I think one of the reasons why the wage growth has been lagging what we have seen historically when we've had this low an unemployment rate is because this youngest group has not recovered. We still have slack in the least-experienced, least-skilled part of the labor force," she said. If slack in that group rises, competitive forces would push up wages for everyone, she said.

The participation rate of 16-to-24-year-olds was 55.5 percent in July, compared to 59.5 percent in 2008.

Total CEO: Hopeful labor reform will lead to more investment and jobs

Rick said one reason wage gains could be sluggish is that baby boomers with high salaries are being replaced by lower-paid, younger workers when they retire.

Economists expect the August report to be neutral for the Federal Reserve, which bases policy decisions on employment and inflation. Even if the job growth is lower than expected, the at its September meeting. It could then raise interest rates in December, as many economists expect.

Some economists are skeptical job growth will be that robust in August, in part because August payrolls have a history of being soft.

Goldman Sachs economists expect just 160,000 payrolls in August and expect to see wages rise by just 0.1 percent.

If the number is weak, it is not expected to influence Fed policy. The Goldman economists said recent data has been firm, and the weakness with August reports is well known. "There are several months between now and December to make up for any weakness in tomorrow's report," they wrote in a note.

JPMorgan economists point to the same issues with August, but they are forecasting 200,000 payrolls. They note over the last five years, the first revision to August payroll data has averaged 17,000, and between the first prints and latest figures for the August reports, the revision has averaged 54,000.

"We look for a strong August reading despite the August figures coming in softer than other months on average over recent history [even though the data are seasonally adjusted]," the JPMorgan economists wrote.

They also said Hurricane Harvey should have no bearing on the August report. However, economists expect to see a hit to the September and possibly October reports. Gapen estimated that payrolls could be reduced by roughly 75,000 jobs by Harvey. In the year that Katrina hit the Gulf Coast, along with two other storms, 200,000 jobs were lost in September and October, he said.

WATCH: How jobs data will impact currency market

Here's how jobs data will impact the currency market