The first U.S. interest-rate increase since 2006 could be in play as soon as next month, and Federal Reserve policy makers have stressed how central the job market will be in their decision. That means the next two employment reports — the first of which is due on Friday — could not be more important, economists say.
Normally "on a scale of one to 10, if you asked me how important the employment numbers are, I'd put it at a 10," said Kathleen Bostjancic, an economist at Oxford Economics USA Inc. in New York. "The next two are like 10-plus-plus."
Here's what economists are expecting when the data drop at 8:30 a.m.:
Employers are projected to have added 225,000 workers to payrolls in July after a 223,000 increase the month before, according to the Bloomberg survey median. So far this year, payrolls have grown by an average 208,000 each month.
While that's less than last year's impressive pace of 260,000, it's enough to keep reducing labor-market slack. For the Fed, it's the continuance of that overall trend that matters. Markets, however, are going to be "intensely focused" on whether the data argue for a rate increase sooner or later, Bostjancic said.
"The market will start to price in more of a probability for a September rate hike if we get 200,000 or more on payrolls," Bostjancic said. "If they come in well below 200,000, then you get back to that whole debate: is it September, December or even next year?"
Other economy-watchers say the report would have to be almost disastrous to significantly derail prospects for a September increase.
"It would take shockingly poor economic data — which is not 150,000 versus 225,000, it's something worse than that — or real volatility in financial markets," said Michael Shaoul, chief executive officer at New York-based Marketfield Asset Management, which oversees about $5 billion. "Whatever the number is, it's very hard to argue that we're not in a very steady period of improving labor metrics, which eventually are going to require tighter monetary policy."
The pace of wage growth is even more important to the discussion around timing than the headline employment number, argues Michael Gapen, chief U.S. economist for Barclays Plc in New York.
Average hourly earnings are expected to climb 0.2 percent in July from the month before after being little changed in June, the Bloomberg survey shows. Compared with the year before, earnings are projected to increase 2.3 percent.
The data will be given even greater attention after the bleak read on wages provided by the employment cost index last week.
"We have plenty of evidence over the past several years" that job growth is generally going to keep improving, Gapen said. "It's now more about when you think labor markets will lead to some wage inflation and overall price inflation."
Similarly important will be any change in the jobless rate, which is projected to stay at 5.3 percent in July for a second month. With the rate already so close to the 5 to 5.2 percent range that Fed policy makers have indicated marks full employment, a decrease could be another signal that it's time to move the benchmark interest rate off zero.
"Most FOMC participants -- nearly all -- have rates going higher in the calendar year in which they have the unemployment rate hitting their NAIRU estimate," Gapen said, referring to the lowest level of joblessness that still keeps inflation stable. "We don't absolutely have to see that in order for them to go in September. You just need to be in the area of your NAIRU."
The number of jobs created in high-paying industries versus low-paying ones is also worth paying tracking, said Maury Harris, chief economist at UBS Securities LLC in New York.
"We want to see if job quality's improving," he said. "The growth rate of the low-wage jobs has stabilized, and you've had some pickup over the last year in the growth of high-wage jobs."
More of that would help dispel the notion that the recovery has created mostly low-wage positions.
Excluding the mining and logging industry, which employs fewer people and has taken a beating this year with the decline in oil, payrolls in the top six industries ranked by employee pay have grown 2.5 percent in the year ended June on average, Labor Department data show. That compares with a 2.3 percent increase for the bottom six industries.
Annual retooling in the auto industry may create some noise in the report, according to Ryan Sweet, a senior economist at Moody's Analytics Inc. Because there were fewer plant closings this year, or in some cases the shutdowns didn't last as long as in prior years, auto and parts factory payrolls may have been inflated last month, he said.