U.S. hiring data expected to show modest progress

Washington Aug 02 – U.S. employers likely hired enough workers in July to push the jobless rate to a near four-year low, which could bolster expectations the Federal Reserve will start drawing down its huge economic stimulus program later this year.

The number of jobs outside the farming sector could increase by 184,000, with the unemployment rate ticking down a tenth of a point to 7.5 percent, according to a Reuters poll of economists.

While the U.S. economy has appeared stuck in low gear since exiting the 2007-09 recession, the job market has inched toward recovery at a steady pace.

July's expected growth in payrolls, while a slight downshift from the pace in June, would essentially match the average monthly gain clocked since 2011.

"The U.S. economy is grinding along for the better, but it's going to be a long and slow grind," said Tanweer Akram, an economist at ING U.S. Investment Management in Atlanta.

The Labour Department will release its monthly employment report at 8:30 a.m. EDT (1230 GMT) on Friday. The expected drop in the jobless rate would take it back to April's level, which was the lowest since December 2008.

The data could reinforce the view that the U.S. recovery has advanced enough to get by with less help from the Fed, which currently buys $85 billion a month in bonds to keep borrowing costs low.

The stimulus program has lowered interest rates, spurring growth in the country's beleaguered housing market and boosting car sales. Fed Chairman Ben Bernanke said last month the U.S. central bank would likely reduce the level of monthly purchases by the end of the year, and end them by mid-2014.

The Fed's policymaking committee wrapped up a two-day meeting on Wednesday without any change to the program. The panel's statement, however, referenced new factors that could be seen as risks to growth: a recent rise in mortgage rates and persistently low inflation. Central bank policymakers next meet in September.

STRUCTURAL CONCERNS

Many economists believe another month of trend-rate hiring would lead the Fed to trim its bond buying in September.

But Friday's jobs report could also entertain darker views on the economy.

For one, analysts wonder if the pace of job creation can be sustained given slower-than-expected economic growth.

Gross domestic product, a measure of the nation's economic output, grew at a mere 1.4 percent annual rate in the first half of the year, down from 2.5 percent in the same period of 2012.

Most economists expect GDP will accelerate in the second half of this year, which would make it more plausible for the current hiring trend to continue.

But the fact that job creation has been relatively robust despite weak output might point to a frightening possibility: perhaps the economy's growth potential has fallen.

This would mean less output is needed to create jobs, but that incomes would grow at a slower pace over the long run. The prospect of such a structural shift worries economists and investors.

"It's something we have been talking about a lot," said Jeffrey Cleveland, a Los Angeles-based economist at investment management firm Payden & Rygel.

One corner of the jobs report that could give hints of this shift could be in the tallies for part-time workers, he said.

Some 5.7 percent of Americans who had jobs in June could not get enough hours to qualify as full-time workers. While the unemployment rate has fallen by about half a point over the last year, the share of part-time workers who want more hours has been largely unchanged.

Also, the number of long-term unemployed, while falling, remains historically high. Bernanke has warned this situation could deal lasting damage to the economy's growth potential.

That is because workers out of work for extended periods might never work again. In June, 4.3 million Americans had been unemployed for at least six months.

REUTERS