August jobs report is expected to be solid, but economic recovery still hasn't taken off
WASHINGTON — The U.S. economy apparently delivered another solid month of job gains in August, but the looming fiscal fight in Congress, coupled with tension in the Middle East, could test the resiliency of the recovery.
An estimate of monthly hiring released Thursday morning by the human resources firm ADP clocked in at 176,000 jobs for August — a slowdown from the previous month, but still in line with the steady rebound this summer. Meanwhile, government data showed the number of people filing for unemployment benefits dropped to 323,000 last week. The four-week average for claims hit a six-year low.
The Labor Department is slated to report its closely watched estimate of employment Friday morning.
Mark Zandi, chief economist at Moody's Analytics, said job growth has been "remarkably consistent" in recent months, with gains across a broad swath of industries and businesses. Zandi, who helped calculate the ADP estimate, noted that the increases came despite significant federal spending cuts and the rollout of health-care requirements for businesses.
Although he still expects the recovery to pick up soon, he said Washington remains a wild card. "The script is still being played out here," Zandi said. "This go-round may not go as smoothly."
There are several potential pitfalls facing lawmakers over the next several months. Congress must agree on at least a short-term spending plan by October or risk shutting down the federal government. In addition, the nation may not be able to pay all of its bills unless lawmakers agree to raise the debt ceiling before it is reached in mid-October. House Speaker John Boehner, R-Ohio, has promised a "whale of a fight" and is likely to seek changes to President Barack Obama's signature health-care law in exchange for cooperation on the debt limit.
"It's hard to judge it in a normal way because the threat is irrational," said Robert Shapiro, a former senior Democratic economic adviser who heads the advisory firm Sonecon. "It doesn't really advance the self-interest of anyone."
Overshadowing those debates is the possibility of a U.S. attack on Syria and tumult in the Middle East. Crude oil prices jumped to an 18-month high in late August, though they have moderated since. The price of West Texas Intermediate crude oil for customers needing delivery in October rose about 1 percent Thursday, to $108.35 a barrel.
At the very least, the discussion of U.S. involvement in Syria may delay the fight over — and eventual resolution of — the country's fiscal problems.
"The ongoing debate regarding Syria on Capitol Hill increases the likelihood that lawmakers punt on both the budget and the debt ceiling, which would set up another fiscal fight at the end of 2013," said Isaac Boltansky, policy analyst at Compass Point.
Although many analysts say the likelihood of an actual government shutdown or debt limit breach is low, a messy and public fight could be enough to spook investors and businesses. The uncertainty also adds another wrinkle to the Federal Reserve's plan to begin scaling back its massive stimulus program.
The central bank has been buying $85 billion in Treasurys and mortgage-backed securities each month to push down long-term interest rates. The program is largely contingent on the health of the labor market, and officials hope it will soon be strong enough to stand on its own.
Some economists believe the Fed could begin shrinking its bond-buying program when it convenes its regular policy-setting meeting Sept. 17. But another partisan showdown over fiscal issues could be a reason to move carefully.
Shapiro said he is no longer predicting an acceleration in the recovery during the second half of the year. "I have said for quite some time that the pieces for a stronger recovery are in place," he said. "But the economy still has not taken off."