WASHINGTON (AFX) -- U.S. job growth was probably strong enough in March to keep the Federal Reserve on course to raise interest rates at least one more time, economists say.
Of all the data upon which the Fed is said to be dependent, none is as vital as the monthly jobs report, the first and most informative government economic release each month.
The Labor Department will release the monthly jobs report on Friday at 8:30 a.m. Eastern.
The jobs report is very nearly the only report that matters. It has details about the two burning issues: Economic growth and inflationary pressures.
The market is likely to have a strong reaction to the report, even if it comes in as expected, said Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.
Economists expect job growth of about 187,000 in March, down slightly from the 243,000 gained in February, according to a survey of 41 economists conducted by MarketWatch.
February's gains were likely boosted by weather factors, especially in the construction industries.
The economy has averaged job growth of 171,000 per month over the past year, more than enough to absorb the new people joining the workforce and slowly reduce the number of people who want a job but can't find one.
The unemployment rate is expected to remain at 4.8%, just a tick higher than the cyclical low of 4.7% reached in January.
Fed eyeing wage levels
The Fed now worries about a potential labor shortage that could lead firms to bid up wages for workers. There's a fear that higher wages would then lead firms to raise their prices.
Average hourly wages have increased at an annual rate of 3.9% in the past three months and 3.5% over the past 12 months. Economists expect a 0.3% gain in March.
Although wages are rising for a few high-skilled occupations, 'we haven't seen it yet' for most jobs, said Jesse Harriot, vice president for research for Monster Worldwide. 'Companies don't expect to pay more for entry-level positions.'
The Monster employment index increased for the third straight month in March, rising by 7 points to 164, the company said Thursday. While the Monster index doesn't correlate directly with monthly gains in payrolls, it does indicate that hiring remains robust across most industries, occupations and regions of the nation, Harriot said.
How the markets are likely to react
If the payroll and wage numbers come in close to expectations, bonds are likely to fall and equities to rally, Crescenzi said. Such a result would keep the Fed on its path to raise overnight rates to 5% in early May, and would therefore keep the pressure on Treasury bills, notes and bonds to breach 5%.
If payrolls are higher than 250,000 or so, both markets would fall because stronger growth might lead the Fed to raise rates to 5.25% or 5.50% or more later this year, Crescenzi reasoned.
If, on the other hand, the numbers are weaker than expected, say below 150,000, both markets 'would cheer,' Crescenzi said.
Any market reaction would be muted by the knowledge that the Fed will also have the April payroll report in hand when it meets next on May 10. This story was supplied by MarketWatch. For further information see www.marketwatch.com.