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Jobs seen weak in July, may help push Fed to act

WASHINGTON (Reuters) – U.S. employment probably only inched up in July as the economy struggled to regain momentum, strengthening expectations of additional monetary stimulus from the Federal Reserve.

Nonfarm payrolls likely rose 100,000 last month, according to a Reuters survey, after gaining 80,000 in June.

The closely watched employment report comes two days after the U.S. central bank sent a stronger signal that a new round of major support could be on the way if the faltering recovery does not pick up.

Job growth in recent months missed expectations and economists say other employment indicators recently suggest that July will show a similar picture.

“If the data comes in weaker-than-expected, it’s going to give the Fed political cover, given how close we are getting to the November elections, for them to ease monetary policy,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Most economists expect the Fed will launch a third round of bond purchases, possibly at its next policy meeting on September 12-13. That’s despite the approach of the U.S. presidential and congressional elections in November which could leave the central bank open to criticisms from Republicans who have made the weak economy a centerpiece of their campaigning.

The Fed has held interest rates close to zero for nearly four years and pumped about $2.3 trillion into the economy,

By the time of the Fed’s meeting in September, policymakers will also have had a chance to see August’ s payrolls report.

The labor market has slowed sharply after strong gains in the winter, spelling trouble for President Barack Obama ahead of the November 6 elections.

A recent Ipsos/Thomson Reuters poll showed 36 percent of registered voters believe Republican presidential candidate Mitt Romney has a better plan for the economy, compared to 31 percent who had faith in Obama’s policies.

The unemployment rate is expected to have held steady at 8.2 percent in July. It has been stuck above 8 percent for more than two years, the longest run since the Great Depression.

The total number of people employed is 4.9 million lower than before the 2007-09 recession.

The Labor Department will release the employment report at 08:30 a.m. (1230 GMT).

Fears of deep government spending cuts and higher taxes that are due to begin in early 2013 and fears that Europe’s debt crisis could get worse have dissuaded employers from hiring, economists say.

Economists say the biggest factor weighing on sentiment is fear that politicians in Washington will be unable to avoid the so-called fiscal cliff at the turn of the year.

LIMITED JOB DESTRUCTION

“We are not seeing large scale layoffs, so job destruction is pretty limited,” said Scott Brown, chief economist at Raymond James Associates in St Petersburg, Florida.

“The problem all along has been a lack of hiring and we expect that the uncertainty about the elections, the fiscal cliff and Europe may restrain the pace of hiring as well as capital spending.”

Data last week showed the economy grew at an annual pace of 1.5 percent in the second quarter, far short of the 2.5 percent rate needed to keep the unemployment rate stable.

There is little to suggest a shift in the pattern of job growth in July. Weekly applications for unemployment benefits showed neither a pickup nor a drop in layoffs during the month.

Regional manufacturing surveys offered a mixed picture on hiring. The private sector is again expected to have accounted for all the job gains in July, adding 110,000 new positions.

A separate survey of private hiring by data payrolls processor ADP came in stronger than expected this week, showing 163,000 new jobs in July, but that did little to change forecasts for the more closely watched government report.

Government payrolls are seen dropping by 10,000, but state and local teaching jobs are a wild card.

Some economists expect cash-strapped local governments to shed teachers. Others see a bounce back after teaching positions contracted by 14,200 in June.

Construction employment is expected to have risen in line with increases in home-building. Gains are likely to be modest as most residential construction is in the less labor-intensive multi-family homes segment.

Manufacturing payrolls are seen rising for a 10th month, but the timing of shutdowns by automakers could cause problems with the model that the government uses to smooth the data for typical seasonal patterns.

Automakers usually shut plants for retooling in July, but most have kept production lines running.

Within the vast services sector, temporary help services are expected to show another month of strong gains. Many businesses are hiring temporary workers due to the uncertain outlook.

Temporary jobs accounted for 30 percent of the 80,000 created in June, compared with 2.2 percent before the recession. Hiring in the utility sector was seen restrained by a strike at a power firm in New York last month.

Analysts are likely to look at average hourly earnings and the length of the work week for clues whether consumer spending will regain steam after it slowed sharply in the second quarter.

Growth in average hourly earnings is seen slowing to 0.2 percent from 0.3 percent in June.

The average work week is seen steady at 34.5 hours, but could edge up as businesses opt to increase hours for their current workforce rather than add new employees.

(Reporting By Lucia Mutikani; Editing by Andrew Hay)

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