Wednesday, June 20, 2018
Business

Fed likely to taper bond buying with improving U.S. economy

WASHINGTON — The economy is showing strength as summer nears a close — a trend that's raising the likelihood that the Federal Reserve will slow its bond buying later this month.

The steady improvement is also lifting hopes for today's report on last month's job growth. The August gain is expected to nearly match the year's monthly average of 192,000 jobs.

On Thursday, reports showed that services companies are stepping up hiring and that a dwindling number of people are losing jobs. Those figures follow reports of stronger auto sales and faster expansion by U.S. factories.

Analysts predict that employers added 177,000 jobs in August.

"People are finding work, and they have more money to spend," said Drew Matus, an economist at UBS.

The improved jobs picture is a key reason most economists expect the Fed to announce later this month that it will scale back its bond buying. The Fed's $85 billion a month in Treasury and mortgage bond purchases have helped keep home loan and other borrowing rates ultra-low to encourage consumers and businesses to borrow and spend more.

Chairman Ben Bernanke has said the Fed could begin slowing its bond purchases by year's end if the economy continued to strengthen and end the purchases by mid 2014. At its policy meeting Sept. 17-18, the Fed will debate whether to taper its monthly purchases and, if so, by how much.

Key data released in the past week have bolstered the position of those Fed officials who argue that the economy is healthy enough to withstand tapering:

• U.S. services firms, which employ about 90 percent of the U.S. workforce, expanded last month at their fastest pace in nearly 8 years, according to a report Thursday from the Institute for Supply Management. Sales and new orders rose. Service companies also hired at the fastest pace in six months.

• The four-week average of applications for U.S. unemployment benefits fell to 328,500, its lowest point since October 2007 — two months before the Great Recession officially began. The trend shows that employers are laying off fewer and fewer workers. Last week's claims dropped 9,000 to a seasonally adjusted 323,000.

• Survey results reported Thursday by payroll provider ADP found that American businesses added 176,000 jobs in August. That was just below the 198,000 added in July but close to the past year's average monthly gain.

• Americans bought new cars in August at the fastest annual pace since November 2007, before the recession. Auto sales jumped 17 percent compared with a year earlier.

Still, more than four years after the recession officially ended, the economy has a long way to go return to full health. The unemployment rate is well above the 5 to 6 percent range associated with a normal economy.

In addition, most of the growth in the number of people working is due to fewer layoffs rather than strong hiring. Many employers remain reluctant to fill jobs.

Also, many of the jobs created this year have been part-time positions in industries with generally low pay, such as hotels, retailers and restaurants. Such jobs leave consumers with less money to spend than do better-paying positions in industries such as manufacturing and construction, which have mostly shed jobs the past four months.

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