Friday’s employment report is expected to show a fourth straight month of strong job gains, bolstering President Bush’s economic record and supporting the Federal Reserve’s decision to begin raising interest rates this week.
On average, economists polled by Thomson Financial estimated 260,000 jobs were created in June, which would a bit more than May’s 248,000 and bring the four-month total to 1.2 million. The results represent a huge turnaround from the first 38 months of Bush’s presidency, when the economy shed 2.2 million jobs.
The unemployment rate is expected to remain steady at 5.6 percent as job-seekers return to the job market, encouraged by the recent hiring trend.
“It appears corporate America is trying to do catch-up at this point after holding back for so long,” said Kurt Karl, chief economist at Swiss Re.
The employment report, the first official indicator of how the economy did last month, will be scrutinized especially closely for how it might affect the Fed’s plan to continue raising short-term rates.
The central bank Wednesday hiked its benchmark federal funds rate for the first time in four years, citing the expanding economy and improving labor market conditions. Most analysts expect this week’s quarter-point increase to be followed by another quarter-point hike in August, when Fed policy-makers hold their next scheduled meeting.
But “blowout” employment numbers on Friday and next month could force the Fed to act more aggressively and boost rates by a half-point, particularly if the Labor Department reports a sharp increase in consumer prices this month, Karl said.
Thursday’s survey from the Institute for Supply Management showed that manufacturing growth slowed slightly in June, although the overall ISM index was still healthy at 61.1. But David Rosenberg, chief North American economist at Merrill Lynch, pointed out that the new-orders index now has fallen for six straight months for the first time since 1990, when the economy was in recession.
A deceleration in manufacturing is consistent with a forecast for slower overall growth after the ramped-up pace of late 2003, Rosenberg said.
Scott Brown, chief economist at Raymond James, noted that claims for new unemployment benefits edged up for a second straight week and have remained at levels that are higher than would be expected given the recent strong job growth.
“I think we could get a downside surprise (on employment), whether this week or next month,” he said. “I’m looking for a bit of moderation in a lot of the data. … If that’s the case we’re going to get a lot of mixed economic figures that could whip the markets around a bit.”
Political impact
Mixed economic data also could stir up the tight presidential race. President Bush has been boosted lately by reports showing strong job growth after a long jobless recovery. Any weakness in job growth between now and November would offer an opening for Democratic candidate Sen. John Kerry to attack Bush’s economic record.
While 1.2 million jobs have been lost since Bush took office, that deficit could easily be erased if hiring continues at its recent pace, saving Bush the ignominy of being the first president since Hoover to preside over a four-year term of declining employment.
“The economy has turned very sharply in Bush’s direction, so his biggest weakness is becoming a strength,” said Cary Leahey, senior U.S. economist at Deutsche Bank Securities.
The improving economic picture appears to be having an impact on consumers, whose confidence hit the highest level in two years in June, according to a Conference Board report this week.
“They get the feeling that things have turned the corner, and that’s making them much more hopeful,” said Joel Naroff of Naroff Economic Advisors. “They’re beginning to focus more on the idea of fundamental economic and consumer confidence rather than the Iraq war that had been driving confidence previously.”
Friday’s report is also expected to show a sixth straight monthly rise in hourly earnings, though the workweek will likely be unchanged at 33.8 hours, according to a Reuters survey of economists.
Longer hours and fatter paychecks are seen by experts as evidence the economy is on the threshold of even stronger job gains in the months ahead.
Reuters contributed to this report.