U.S. Payroll Gains Probably Slowed in August: U.S. Economy Preview

Hiring probably slowed in August and U.S. manufacturing contracted for the first time in two years as Americans lost confidence that the recovery will be sustained, economists said before reports this week.

Payrolls climbed by 75,000 workers after a 117,000 increase in July, according to the median forecast of 65 economists surveyed by Bloomberg News before Labor Department data Sept. 2. Factories pulled back last month for the first time since July 2009, a report the previous day may show.

The first U.S. credit downgrade in history, political squabbling over the budget and mounting concern over a default in Europe caused the Standard & Poor’s 500 Index to plunge 17 percent from July 22 to Aug. 8, probably prompting American companies and consumers to cut back. Federal Reserve Chairman Ben S. Bernanke last week said the recovery had been “less robust” than hoped and reiterated that the central bank still has tools to stimulate growth.

“The underlying trend is weakness moving into the second half of the year, where we expect much more of a pullback,” said Bricklin Dwyer, an economist at BNP Paribas in New York.

The unemployment rate held at 9.1 percent last month, according to the survey median. A labor dispute at Verizon Communications Inc. (VZ) affecting about 45,000 workers may have contributed to the slowdown in payroll gains, according to economists like Stephen Stanley at Pierpont Securities LLC in Stamford, Connecticut.

Smaller Gain

Private payrolls, which exclude government jobs, rose 105,000 after a gain of 154,000 in the prior month, economists forecast the employment report will also show.

The economy expanded at a 1 percent pace in the second quarter following a 0.4 percent gain in the first three months of the year, the Commerce Department reported last week. Consumer spending grew 0.4 percent, the smallest increase since the last three months of 2009.

“Obviously, the economy is pretty weak,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. “Getting the unemployment rate lower is going to be difficult.”

Manufacturing, a stalwart of the expansion, shrank last month, a report may show Sept. 1. The Institute for Supply Management’s factory index fell to 48.5 from 50.9 in July, according to a Bloomberg survey of economists. A reading below 50 signals contraction.

The projected gain in total payrolls would bring the average from May through August to 73,000, down from 179,000 in the first four months of the year.

Falling Short

Sustained increases of around 150,000 a month are needed to bring unemployment down about half a percentage point over a year, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “200,000 is the speed the economy needs to really cut into the jobless rate,” he said.

Through July, the economy had recovered about 1.94 million of the 8.75 million jobs lost as a result of the 18-month recession that ended in June 2009.

“Economic growth has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment,” Bernanke said Aug. 26 at the Jackson Hole, Wyoming, central bank symposium. “It is clear that the recovery from the crisis has been much less robust than we had hoped.”

Investors have also turned less confident. The Standard & Poor’s 500 Index has slumped, exacerbated by S&P’s downgrade of U.S. debt on Aug. 6 after weeks of political wrangling over deficit-cutting measures and amid rising concern of a euro zone default.

Job Cuts

Banks have been among companies announcing the biggest dismissals. Bank of America Corp. (BAC), the biggest U.S. lender, will eliminate about 3,500 jobs this quarter to focus “on what we can control” amid market turmoil, said Chief Executive Officer Brian T. Moynihan on Aug. 19. “It is tough to have to manage through reductions, but we owe it to our customers and our shareholders to remain competitive, efficient and manage our expenses carefully.”

A report from the Commerce Department tomorrow may show consumer spending increased in July as auto sales rebounded. Purchases rose 0.5 percent after a 0.2 percent decline the prior month, according to economists surveyed.

In a reminder that housing remains a weak link in the economy, signed contracts to buy existing homes fell 0.9 percent in July, economists forecast the National Association of Realtors will report on Aug. 29.

Another report may show home prices in 20 U.S. cities dropped in the year ended June by the most in 19 months. The S&P/Case-Shiller index of property values in 20 cities fell 4.6 percent from June 2010, economists forecast the group will say on Aug. 30.

Finally, factory orders rose 1.8 percent in July after a 0.8 percent decline the prior month, economists forecast the Commerce Department will report the following day.

                       Bloomberg Survey

==============================================================
                        Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
==============================================================
Pers Inc MOM%             8/29      July      0.1%      0.3%
Pers Spend MOM%           8/29      July     -0.2%      0.5%
Core PCE Prices YOY%      8/29      July      1.3%      1.4%
Pending Homes MOM%        8/29      July      2.4%     -0.9%
Case Shiller Monthly MO   8/30      June     -0.1%      0.0%
Case Shiller Monthly YO   8/30      June     -4.5%     -4.6%
Consumer Conf Index       8/30      Aug.      59.5      52.0
ADP Payroll ,000’s        8/31      Aug.      114       100
Factory Orders MOM%       8/31      July     -0.8%      1.8%
Productivity QOQ%         9/1       2Q F     -0.3%     -0.5%
Labor Costs QOQ%          9/1       2Q F      2.2%      2.3%
Initial Claims ,000’s     9/1      26-Aug     417       408
BCCI                      9/1     Aug. 29    -47.0     -47.7
Construct Spending MOM%   9/1       July      0.2%      0.2%
ISM Manu Index            9/1       Aug.      50.9      48.5
Nonfarm Payrolls ,000’s   9/2       Aug.      117        75
Private Payrolls ,000’s   9/2       Aug.      154       105
Unemploy Rate %           9/2       Aug.      9.1%      9.1%
=============================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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