Jobs Report to Help Fed on Interest Cut09/06 06:11

   Friday's monthly jobs report will likely mark a pivotal moment for the 
economy and the Federal Reserve.

   WASHINGTON (AP) -- Friday's monthly jobs report will likely mark a pivotal 
moment for the economy and the Federal Reserve.

   If it shows that hiring was weak in August and that the unemployment rate 
rose -- similar to the unexpectedly soft figures for July -- it would heighten 
worries that the job market is stumbling. The Fed might then seek to deliver a 
stimulus with a larger-than-usual interest rate cut of a half-percentage point 
when it meets later this month.

   If, on the other hand, hiring picked up from July's gain of just 114,000 or 
if the unemployment rate fell from 4.3% -- the highest level in three years, 
though still low by historical standards -- it would suggest that the labor 
market remains stable, though slowing. The Fed would probably cut its key rate 
from its 23-year high by a more modest quarter-point, with further rate cuts to 
follow in the coming months.

   Either outcome could also help shape the remaining two months of the 
presidential race. Another sluggish hiring report would fuel former President 
Donald Trump's claims that the Biden-Harris administration has overseen a 
worsening economy.

   A healthier report, though, would arm Vice President Kamala Harris with 
evidence that the job market is still motoring ahead even while inflation has 
tumbled from a four-decade peak to near the Fed's 2% target, opening the door 
to rate cuts. Reductions in the Fed's benchmark rate will eventually lead to 
lower borrowing costs for a range of consumer and business loans, including 
mortgages, auto loans and credit cards.

   The two presidential nominees outlined dueling economic plans in speeches 
this week, with Trump promising to cut corporate taxes to 15% and eliminate 
taxes on tips and Social Security income. Harris has vowed to expand tax 
deductions for start-up companies while raising the corporate tax rate to 28%.

   Economists have estimated that the government will report Friday that 
employers added 160,000 jobs in August and that the unemployment rate slipped 
back to 4.2%. Since hitting a half-century low of 3.4% in April of last year, 
the jobless rate has risen nearly a full percentage point.

   Most of the rise in the jobless rate, though, reflects an influx of people 
into the labor force -- notably, recent immigrants as well as new college 
graduates -- who didn't find work right away and so were counted as unemployed. 
This makes the increase in unemployment less of a concern than if it were 
caused by waves of job cuts. The pace of layoffs, in fact, is barely above 
where it was before the pandemic.

   Still, a slower pace of hiring is often a precursor to layoffs -- one reason 
why the Fed's policymakers are now more focused on sustaining the health of the 
job market than on continuing to fight inflation.

   Recent economic data has been mixed, elevating the importance of the jobs 
report, which is among the more comprehensive economic snapshots the government 
issues. The Labor Department surveys roughly 119,000 businesses and government 
agencies and 60,000 households each month to compile the employment data.

   On the weaker side, companies are advertising fewer job openings, and fewer 
workers are quitting for new opportunities. In a healthy job market, workers 
are more likely to quit, usually for new, higher-paying opportunities. With 
quits declining, that means fewer jobs are opening up for people out of work.

   "New grads and returning workers are having an exceptionally hard time 
breaking in," said Daniel Zhao, lead economist at the career website Glassdoor. 
"And so for those folks, it certainly feels even worse because they can't get 
their foot in the door."

   The Fed's Beige Book, a collection of anecdotes from the 12 regional Fed 
banks, reported that many employers appeared to have become pickier about whom 
they hired in July and August. And a survey by the Conference Board in August 
found that the proportion of Americans who think jobs are hard to find has been 
rising, a trend that has often correlated with a higher unemployment rate.

   At the same time, consumer spending, the principal driver of economic growth 
in the United States, rose at a healthy pace in July. And the economy grew at a 
solid 3% annual pace in the April-June quarter.

   Fed Chair Jerome Powell has made clear that he doesn't want to see the job 
market weaken further, which is why a particularly poor jobs report might lead 
the Fed to announce a deep rate cut this month.

   Later Friday, Christopher Waller, a member of the Fed's Board of Governors, 
is scheduled to discuss the economic outlook in a speech at the University of 
Notre Dame. Waller, an influential member of the governing board, may provide 
insights into the Fed's next moves.

   Substantial rate cuts by the Fed could spur some companies to start hiring 
more quickly, some labor market experts say.

   "Everyone's in a bit of a holding pattern," said Becky Frankiewicz, 
president of North America at staffing giant Manpower. "Everyone's watching 
that mid-September meeting, to free up and start spending."