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U.S. job gains seen solid in August, spotlight on Fed

WASHINGTON (Reuters) – The U.S. economy likely added jobs at a steady pace in August and the unemployment rate probably fell to a near 7-1/2-year low of 5.2 percent, which could allow a cautious Federal Reserve to consider a September interest rate hike.

A Reuters survey of economists forecast non-farm payrolls increased by 220,000 last month, up from 215,000 new jobs in July.

That would underscore the economy’s vibrancy in the face of volatile global financial markets and China’s slowing growth, and keep alive the prospect of the Fed raising benchmark overnight rates at its next policy meeting, on Sept. 16-17.

“We don’t think it will detract from the possibility that the Fed is considering a September rate hike, only if we saw ominous signs of a deterioration elsewhere in the data,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

The Labor Department will release its closely watched employment report on Friday at 8:30 a.m. EDT (1230 GMT).

In the wake of the recent global equities selloff, financial markets significantly scaled back bets on a rate hike over the past month. But Fed Vice Chairman Stanley Fischer told CNBC last week it was too early to decide whether the stock market rout had made a September rate increase less compelling.

Economists acknowledge a risk that job gains could come in below expectations as the first reading of August payrolls has tended to be weaker in the last several years before being revised higher.

They say the model the government uses to smooth the data for seasonal fluctuations often does not fully capture statistical noise from the start of a new school year. In addition, the response rate from employers to the government’s job survey tends to be low in August.

According to Goldman Sachs, preliminary August payroll numbers have undershot expectations by an average of 30,000 since 2010, while subsequent revisions have averaged 79,000 over the past five years.

ECONOMIC MOMENTUM

“Despite the stock market volatility this month and the growing cracks in China’s economy … we don’t see any signs of slowing in the labor market yet,” said Andrew Chamberlain, chief economist at Glassdoor in San Francisco.

Sturdy payroll gains would add to a string of upbeat data, including figures on automobile sales and housing, that has suggested the economy was moving ahead with strong momentum early in the third quarter after growing at a robust 3.7 percent annual rate in the April-through-June period.

If the jobless rate falls one-tenth of a percentage point as expected that would take it to its lowest level since April 2008 and bring it into the range that most Fed officials think is consistent with a low but steady rate of inflation.

Jobs gains were likely spread across nearly all sectors of the economy in August. The energy sector, which is still grappling with last year’s sharp drop in crude oil prices, is expected to be the exception.

Robust demand for autos is seen boosting manufacturing employment, while solid gains are forecast for construction payrolls as housing gains muscle.

Average hourly earnings are expected to have risen 0.2 percent – the same as in July. That would leave them around 2.2 percent above their year-ago level, still well below the 3.5 percent growth rate economists consider healthy.

Some analysts think earnings are being held back by falling wages in oil field services.

But a tightening labor market and decisions by several state and local governments to raise the minimum wage should eventually translate into faster earnings growth and give the Fed confidence that inflation, which collapsed with oil prices, will move closer to its 2 percent target.

A number of retailers, including Walmart, Target and TJX Cos, have increased pay for hourly workers.

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