US companies possibly maintained a solid pace of hiring in November while increasing wages for workers, indicating that the economy is still strong enough for the Federal Reserve to continue raising interest rates in 2019.
The Labor Department will publish its closely followed monthly employment report on Friday against a backdrop of a sharp selloff on Wall Street and a partial inversion of the US yield curve, which have fueled fears of a recession.
Stocks have been mostly damaged by the uncertainty over whether a 90-day truce agreed by President Donald Trump and President Xi Jinping over the weekend will hold and lead to a lasting easing of trade tensions between the world’s two largest economies.
Non-farm payrolls probably increased by 200,000 jobs last month, according to a survey of economists, after surging 250,000 in October. The unemployment rate is predicted to be steady at close to a 49-year low since April 2009.
A strong employment report would allay fears about the economy’s health and increase the probability of the Fed raising interest rates more than once next year.
“Since the Fed is now very data-dependent, stronger data should give the market more confidence that the Fed will continue hiking in 2019,” said Veronica Clark, an economist at Citigroup in New York. “We think the Fed will go twice next year.”
Financial markets are pricing in one rate hike from the Fed in 2019, compared with expectations for possibly two rate hikes a month earlier, according to CME Group’s FedWatch program. The US central bank is expected to increase borrowing costs on December 18 to 19 for the fourth time this year.
Fed Chairman Jerome Powell last month appeared to signal the central bank’s three-year tightening cycle was drawing to a close, claiming that its policy rate was now “just below” estimates of a level that neither cools nor bolsters a healthy economy.
Minutes of the Fed’s November policy meeting published last week showed nearly all officials agreed that another interest rate increase was “likely to be warranted fairly soon,” but also opened debate on when to pause further hikes.
Wage growth could surprise the markets on the upside after online retail giant Amazon.com Inc raised its minimum wage to $15 per hour for US employees last month in the face of tightening labor market conditions.
Soft October data on the housing market, business spending on equipment as well as an increase in the trade deficit to a 10-year high have worsened fears the economy is slowing down.
Growth predictions for the fourth quarter are around a 2.7 percent annualized rate. The economy grew at a 3.5 percent pace during the third quarter.
Job increases have averaged 212,500 per month this year, double the almost 100,000 that was needed to keep up with the growth in the working-age population. However, there are signs of potential headwinds ahead. A number of Americans applying for unemployment benefits is near eight-month highs.
At present, the labor market is on firm footing and is seen supporting the economy through at least early 2019, after which growth is expected to largely slow as the stimulus from the Trump administration’s $1.5 trillion tax cut package fades.
“Even if layoffs are beginning to pick up in some areas, the fact that many industries are reporting worker shortages and unfilled vacancies suggests that aggregate payrolls could continue to expand,” said Lou Crandall, who is the chief economist of Wrightson ICAP LLC in Jersey City, New Jersey.
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