August jobs report looms as key factor in Fed’s rate decision

After fresh data on everything from GDP to new-home sales and consumer confidence lined up last week in favor of growth, economy watchers will wait with particular interest for the August jobs report on Friday.

After fresh data on everything from GDP to new-home sales and consumer confidence lined up last week in favor of growth, economy watchers will wait with particular interest for the August jobs report on Friday.

That’s because the employment update from the Labor Department is the last one the Federal Reserve will review before deciding whether to raise interest rates for the first time in more than nine years at its Sept. 16-17 meeting.

Fortune says economists expect a job gain of 220,000 and an unemployment rate of 5.2 percent, down slightly from July’s 5.3 percent amid continuing growth in the job market.

Wage growth has been weak in recent years, even though the job market has rebounded, so the update on average hourly earnings that accompanies the employment report will receive strong attention. Earnings grew 2.1 percent on a year-over-year basis in July.

Bloomberg reported Sunday that Mohamed El-Erian, a Bloomberg View columnist and chief economic adviser at Allianz SE, said the job report could be a swing factor in the decision on rates.

“If they see solid jobs growth — in excess of 200,000 — and second, if they see wages finally move up, that is a signal they better get going,” El-Erian said during a Fox News broadcast interview.

El-Erian said although the first rate increase in nearly a decade is a close call, “my gut feeling is they won’t go in September. There is too much global uncertainty.”

U.S. markets have been volatile because of concerns about a slowing Chinese economy, and that volatility is likely to persist during the next few weeks, he said.

’’The international indicators are saying be careful,’’ he said. “The Fed is worried about the unintended consequences of raising rates. You will strengthen the dollar and that will create a headwind for the economy.”

The jobs report is not the only news of significance on the way this week. Auto sales for August will be reported today, and analysts expect that sales fell to 17.3 million from 17.46 million in July. The Commerce Department will report today on construction spending, and expectations are that it rose 0.9 percent, compared with a minuscule 0.1 percent in July.

Factory orders for July will be released by the Commerce Department on Wednesday, and economists believe they rose 0.9 percent.

Two Fed bankers — Eric Rosengren, president of the Federal Reserve Bank of Boston, and Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va. — will speak publicly, Rosengren today in New York and Lacker on Friday in Richmond.

The Commerce Department said last week that the U.S. economy grew 3.7 percent in the second quarter — a faster pace than initially reported — on increases in consumer and business spending, although Bloomberg said rising inventories suggest that the growth will be hard to sustain.

The biggest driver of the upward revision for second-quarter GDP was a bigger gain in business investment. That included stronger readings on construction, research and development and inventories.

Bloomberg said the surge in stockpiles was a double-edged sword because, although it boosted second-quarter growth, companies will probably need to trim the amount of goods on hand from July through September, leading to cuts in production that will restrain GDP.

Also last week, the Commerce Department said new-home sales rose 5.4 percent in July to a seasonally adjusted annual rate of 507,000.

USA Today said buyers have crowded into the housing market this year. Backed by solid job growth during the past two years and relatively low mortgage rates, sales of new homes jumped 21.2 percent during the first half of this year.

Consumer confidence bounced back in August as The Conference Board’s Consumer Confidence Index rose to its highest level since January.

The index stands at 101.5, up from 91.0 in July, the New York-based research group said Aug. 25. The cutoff date for preliminary results from its monthly survey was Aug. 13, which preceded the recent stock market slump.

“Consumers’ assessment of current conditions was considerably more upbeat, primarily due to a more favorable appraisal of the labor market,” The Conference Board director of economic indicators Lynn Franco said in a statement.

“The uncertainty expressed last month about the short-term outlook has dissipated and consumers are once again feeling optimistic about the near future. Income expectations, however, were little improved.”


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