* Nonfarm payrolls expected to have risen 165,000 in June
* Unemployment rate forecast ticking down to 7.5 percent
* Average hourly earnings seen up, work week steady
* Report to show jobs, economy in a holding pattern
By Lucia Mutikani
WASHINGTON, July 5 U.S. job growth probably
slowed in June, but not enough to shift the Federal Reserve away
from expectations that it will start scaling back its massive
monetary stimulus later this year.
Employers are expected to have added 165,000 new jobs to
their payrolls last month, according to a Reuters survey of
economists, slightly below the 175,000 positions created in May.
The unemployment rate is expected to fall a tenth of a
percentage point to 7.5 percent.
The Labor Department will release its closely watched
employment report on Friday at 8:30 a.m. EDT (1230 GMT), two
weeks after Fed Chairman Ben Bernanke offered an upbeat
assessment of the economy's outlook and said the U.S. central
bank expected to start trimming its bond purchases later this
"If we get this number, the Fed would still feel that the
outlook is on track for them to make an announcement later this
year on the tapering," said Sam Bullard, a senior economist at
Wells Fargo in Charlotte, North Carolina.
Job growth has averaged 155,800 per month over the past
three months, just about the amount economists say is needed to
gradually push down the unemployment rate.
There is a risk, however, that June payrolls could beat
expectations after reports on Wednesday showed a pickup in the
pace of hiring by private businesses and the service industries.
The Fed is purchasing $85 billion in bonds each month in an
effort to keep borrowing costs down and spur stronger growth.
Economists said even if June payrolls come in weaker than
expected, it would probably not stop the Fed from curtailing
purchases later this year.
"It will force them to reconsider the size and not
necessarily the timing of any tapering," said Millan Mulraine,
senior economist at TD Securities in New York. "My view is
tapering is essentially baked into the cake."
Twenty-eight of 60 economists polled by Reuters in late June
said they expect the Fed to begin dialing back its purchases in
September, with most expecting the program to end by June 2014.
The majority also forecast the Fed initially would cut
purchases by $20 billion a month.
A batch of economic data, including housing, manufacturing
and auto sales, have general been consistent with the Fed's
views of diminished downside risks to the economic outlook.
However, debt problems in Europe and slowing growth in China
are hampering export growth.
The recent signals from Bernanke that a start date for
reducing bond purchases is approaching triggered a global
selloff in stock and bond markets, which have come to rely on
the Fed as a steady source of demand for financial assets.
Interest rates on everything from U.S. Treasury debt to home
mortgage loans moved sharply higher, threatening to curtail
credit for consumers and businesses.
DECLINING WORKFORCE PARTICIPATION
The central bank is closely watching the unemployment rate.
It has said it expects the jobless rate to drop to around 7
percent by the middle of next year, when it anticipates ending
the bond purchases.
Economists said there was a chance the labor force could
shrink, leading to a bigger-than-forecast drop in the jobless
rate, given that the number of people entering the labor force
had gone up in each of the previous two months.
Those workforce entrants have lifted the participation rate
- the share of working-age Americans who either have a job or
are looking for one - up from a 34-year low touched in March.
Declining participation as older Americans retire and
younger people give up the hunt for work in frustration has
accounted for much of the drop in the unemployment rate from a
peak of 10 percent in October 2009.
The private sector is expected to account for all the
anticipated job gains in June, with payrolls there expected to
have increased by 175,000, little changed from the prior month.
Government employment, in contrast, is forecast shrinking by
10,000 jobs. Economists, however, say the job losses were not
due to the deep government spending cuts known as the sequester.
While the budget cuts that took hold on March 1 do not
appear to be hitting government payrolls directly, some
economists said they were weighing on private employers and
helped explained a sharp slowdown in hiring in the health care
and social assistance sector.
Consumer-related areas such as retail and wholesale trade
are expected to show further gains in employment in June,
reflecting strengthening demand that was highlighted by a surge
in automobile sales in June.
"Consumers are pulling the economy forward," said Sung Won
Sohn, an economics professor at California State University
Channel Islands in Camarillo, California.
Manufacturing payrolls are expected to be flat after three
straight months of declines. But there is a high risk of another
contraction after a gauge of national factory employment
released on Monday tumbled to the lowest in nearly four years in
Construction employment likely added to May's gains as the
housing recovery pushes ahead, but it remains constrained by a
still sluggish non-residential sector.
Other details of the report are expected to show average
hourly earnings rose by 0.2 percent after being flat in May.
Tepid wage growth is holding back the consumer-driven economy.
The length of the average workweek is expected to have held
steady at 34.5 hours.