The number that keeps Federal Reserve policymakers up at night isn't the monthly job gain. It's the jobless rate.
Though unemployment ticked up to 4.4% in June from May's 16-year low of 4.3%, San Francisco Federal Reserve President John Williams said on Wednesday that he sees the jobless rate falling to 4.1% by year end.
X"I just think we don't want to let this go too long because eventually inflation pressures will emerge at some point," Williams said.
Wall Street expects Friday's jobs report to show that the unemployment rate returned to 4.3% in July as the economy added 178,000 jobs.
Although the massive 50,000-job hiring spree by Amazon.com (AMZN) this week won't begin to show up until the next job report, the company had already been holding job fairs to staff various facilities around the country even before the nationwide event. Amazon also announced in April that it will hire 5,000 part-time customer-service reps to work out of their homes.
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Creative Strategies
McDonald's (MCD) said in June that the fast-food chain and its franchisees will add 250,000 workers this summer — more than the Golden Arches hired a year ago. McDonald's was recruiting through a partnership with Snap (SNAP), which will connect users to an online application if they click on a McDonald's recruitment ad on its Snapchat social media site.
While such creative strategies might help connect employers with hard-to-find workers, Disney (DIS) is trying to attract cooks, bus drivers and housekeepers by offering hiring bonuses that start at $500 and rise as high as $1,500 for culinary employees. Disney reports fiscal third-quarter earnings after the close on Tuesday.
Economists expect Friday's jobs report to show that wages rose 0.3% on the month but a tepid 2.5% from a year ago.
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Jefferies economists Ward McCarthy and Thomas Simons characterized subdued wage gains as "unprecedented" at this advanced stage of the business cycle, but they see "a more sustained cyclical acceleration going forward."
Their view is that the labor market is approaching full employment for both skilled and unskilled labor, noting "the increased inclination of workers to change jobs for higher wages."
One question raised by the long lines at Amazon's job fairs is the extent to which the job candidates are currently employed and looking for higher pay. Or are they largely people entering the labor force or looking for a second part-time job?
Wage Pressures
On earnings calls within the past several weeks, numerous companies have talked about wage pressures and tight labor market conditions.
Cheesecake Factory (CAKE) and railroad operator Union Pacific (UNP) both said they are seeing 5% wage inflation.
Texas Roadhouse (TXRH) is seeing 6% wage growth and an even-greater increase in compensation costs when non-wage benefits are included.
On the other hand, staffing company Robert Half International (RHI), which serves accounting, health care and other professions, has seen temp bill rates decelerate to 2.5%.
"What we're seeing is that our clients — they're just unwilling to pay more, because they don't believe they can pass it through in what they bill their clients," Robert Half CEO Harold Messmer said on a July 26 conference call, according to a Seeking Alpha transcript.
"So, it's actually pretty unprecedented in our experience that on the one hand the labor market tightens, on the other hand wage inflation declines," Messmer said.
But he doesn't expect the situation to last, and neither does the Fed's Williams. Despite muted inflation readings in recent months, Williams still envisions four rate hikes between now and the end of 2018, while financial markets see slim odds of more than one through next August, according to the CME Group FedWatch tool.
In other words, a continued drop in the jobless rate could set Wall Street up for multiple rate-hike surprises in 2018.
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