For members of the Federal Reserve, an 11-month campaign to raise short-term interest rates is predicated on two worries: that job growth will heat up and that employers who need workers will start to give big pay increases.
We learn more about that equation on Friday when the Labor Department releases the May employment report.
While the market consensus is that it will show 180,000 new jobs created, economist Brian Wesbury is looking for it to show solid payroll growth of 245,000 positions and expects joblessness to drop to 5.1 percent from 5.2 percent in April.
“This will put to rest those widespread worries that the economy was starting to slow,” said Wesbury, of Claymore Securities in Lisle. “It also will mean that the Fed will continue to raise interest rates, probably for the remainder of this year.”
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The economy’s strength extends to construction and retail sales, Wesbury said.
However, manufacturing, while growing, is moving forward less dramatically, he added.
Also worth watching this week:
– Consumer confidence has lagged in recent weeks on rising gasoline prices and the labor outlook, with an April rating of 97.7, down from 103 a month earlier. Chicago economist William Hummer is looking for Tuesday’s report to show a rebound to 98 or 98.5. “Income growth has been excellent, with the latest figures showing nearly the biggest advance in four years,” said Hummer, of Wayne Hummer Investments.
– The factory sector will be in the spotlight Wednesday, when the Institute for Supply Management issues results of its May purchasing managers’ survey. Economists expect it to show a slight decline from the 53.3 reading in April, but to remain above 50, a level that indicates expansion. The index has fallen modestly for five consecutive months.
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