(Bloomberg Business) — The first U.S. interest-rate increase since 2006 could be in play as soon as next month, and Federal Reserve policy makers have stressed how central the job market will be in their decision. That means the next two employment reports — the first of which is due on Friday — could not be more important, economists say.
Normally "on a scale of one to 10, if you asked me how important the employment numbers are, I'd put it at a 10," said Kathleen Bostjancic, an economist at Oxford Economics USA Inc. in New York. "The next two are like 10-plus-plus."
Here's what economists are expecting when the data drop at 8:30 a.m.
Payrolls
Employers are projected to add 225,000 workers to payrolls in July after a 223,000 increase the month before, according to the Bloomberg survey median. So far this year, payrolls have grown by an average 208,000 each month.
While that's fewer than last year's impressive pace of 260,000, it's enough to keep reducing labor-market slack. For the Fed, it's the continuance of that overall trend that matters. Markets, however, are going to be "intensely focused" on whether the data argue for a rate increase sooner or later, Bostjancic said.
"The market will start to price in more of a probability for a September rate hike if we get 200,000 or more on payrolls," Bostjancic said. "If they come in well below 200,000, then you get back to that whole debate: is it September, December or even next year?"
Other economy-watchers say the report would have to be almost disastrous to significantly derail prospects for a September increase.
"It would take shockingly poor economic data — which is not 150,000 versus 225,000, it's something worse than that — or real volatility in financial markets," said Michael Shaoul, chief executive officer at New York-based Marketfield Asset Management, which oversees about $5 billion. "Whatever the number is, it's very hard to argue that we're not in a very steady period of improving labor metrics, which eventually are going to require tighter monetary policy."
Wages
The pace of wage growth is even more important to the discussion around timing than the headline employment number, argues Michael Gapen, chief U.S. economist for Barclays Plc in New York.
Average hourly earnings are expected to climb 0.2 percent in July from the month before after being little changed in June, the Bloomberg survey shows. Compared with the year before, earnings are projected to increase 2.3 percent.
