Jobless Rate Seen Steady, Labor Costs Rising
The U.S. government’s employment report for July, coming out Friday, will be this week’s most important indicator as investors seek clues to whether the Federal Reserve will again raise interest rates. The unemployment rate probably hovered at 4.3% in July, the same as June, and labor costs probably continued to climb as employers grappled with shortages of skilled workers in a variety of trades, analysts said. The Labor Department report also will probably show that the economy added 206,000 jobs in July after a gain of 268,000 during June. For Fed policymakers, who raised the overnight bank lending rate a quarter-point on June 30 to 5%, the labor market is a likely source of any new outbreak of inflation. Labor costs account for about two-thirds of the cost of most goods and services.
Fed Chairman Alan Greenspan said in his semiannual report to Congress last week that a further decline in the unemployment rate from its recent range of 4.2% to 4.3% would be “one indication that inflation risks were rising.” If employers encounter even more trouble finding workers, they could begin a spiral of rising wages that could lead to higher prices. Average hourly earnings, to be released along with the unemployment report, are likely to have risen 0.3% in July after climbing 0.4% a month earlier.
The central bank and investors also will pay close attention to a factory report due out today. The National Assn. of Purchasing Management’s factory index probably fell to 56 for July from 57 in June, analysts said. That would be the first decline in the index in three months, and it might allow central bankers to bide their time about raising interest rates. The Fed will also keep an eye on the Labor Department’s productivity figures, due out Thursday. Worker output probably increased at a 2.4% annual rate during the second quarter after rising at a 3.5% pace in the first quarter, analysts said.
Other economic reports coming this week:
* In a report due today, construction spending probably increased 0.2% in June after falling 0.9% in May, analysts said. Starts of new housing construction have slowed of late, in part because of shortages of building material and construction crews.
* The index of leading economic indicators, a gauge of growth during the next six to nine months, probably increased 0.2% during June after rising 0.3% in May, analysts said. The Conference Board, a New York-based business research group, is scheduled to release the report Tuesday.
* A report on factory orders, coming Wednesday, probably increased 0.3% in June following a 1.1% advance during May, analysts said. The slowdown will reflect cooler demand for aircraft and business equipment.
* Consumer credit probably increased by $5.9 billion in June after rising $12.1 billion in May, analysts said. The Federal Reserve is scheduled to issue the report Friday.
