Gross says Fed may have missed opportunity

September 2, 2015 08:54 AM

U.S. private employers added fewer-than-expected workers in August, but the labor market momentum likely remains strong

enough for the Federal Reserve to consider an interest rate hike this year.

The ADP National Employment Report on Wednesday showed private payrolls increased 190,000 last month. While that was

below economists' expectations for a gain of 201,000 jobs, it was a step-up from the 177,000 positions created in July.

The report, which is jointly developed with Moody's Analytics, was published ahead of the government's more comprehensive

employment report to be released on Friday.According to a Reuters survey of economists, nonfarm payrolls likely increased by

220,000 jobs in August after rising 215,000 in July. There is, however, a risk of a weaker number as the first print of August

payrolls has tended to be weaker in the last several years before being revised higher.

The unemployment rate is forecast to tick down to 5.2% from the 5.3% in July. The August employment report would be

released less than two weeks before the Fed's Sept. 16-17 policy meeting.

The chances of an interest rate hike this month have been diminished by a global stock market sell-off in the wake of poor

economic data from China.

However, Fed Vice Chairman Stanley Fischer told CNBC last week it was too early to decide whether the stock market rout had

made a rate hike this month less compelling.

Prices for U.S. Treasury debt were trading lower, while the dollar was at session highs.

In a second report, the Labor Department said nonfarm productivity increased at its strongest pace in 1-1/2 years in the second

quarter, keeping wage inflation subdued for now.

The government revised productivity to show it rising at a 3.3% annual rate, the quickest since the fourth quarter of 2013,

instead of the 1.3% pace reported last month.

Economists polled by Reuters had forecast productivity, which measures hourly output per worker, being revised up to a 2.8%

annual growth pace. Productivity contracted at a 1.1% rate in the first quarter.

The government last week revised second-quarter gross domestic product to show GDP expanding at a 3.7% annual pace

instead of the 2.3% rate it had initially estimated. But the trend in productivity remains weak. Productivity rose 0.7% from a year

ago instead of the 0.3% increase reported last month. Growth in productivity is an important determinant of the economy's non-

inflationary speed limit.Though the second-quarter bounce back is dampening wage pressure for now, the weak trend in

productivity suggests the economy's growth potential could be lower than the 1.5% to 2.0% pace that economists have been

estimating. That would imply the spare capacity in the economy is being squeezed out more quickly than thought and that

inflation pressures may take hold a little bit faster than had been anticipated. Unit labor costs, the price of labor per single unit of

output, fell at a 1.4% rate in the second quarter, rather than increasing at a 0.5% rate as previously reported. Unit labor costs

rose 1.7% compared to the second quarter of 2014. They increased at a 2.6% rate in the first quarter. Compensation per hour

increased at a 1.8% rate in the second quarter, unchanged from last month's estimate. It was up 2.5% compared to the second quarter of 2014.

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