The pickup in U.S. jobs growth in June was probably maintained in July, leaving the Federal Reserve on track for tapering before year-end.

Despite the slowdown in gross domestic product growth, monthly gains in employment have remained close to 200,000. When the Fed launched its current open-ended round of bond buying last year, the primary goal was to secure a substantial improvement in the labor market.

The consensus forecast is that employers added 185,000 jobs in July, resulting from 189,000 gains in the private sector and 4,000 cuts by federal, state and local governments. Manufacturing payrolls have fallen by an average of about 7,000 in each of the three months to June, but economists are looking for a gain of 2,000 jobs in this category in the July report.

The Labor Department will release the July employment report on Friday at 8:30 a.m. EDT.

July’s job gains, if proven correct, would leave the three-month average pace of headline payroll growth at just under 190,000, similar to the 202,000 average for the first six months of the year. Payrolls climbed by 180,000 monthly on average in the second half of 2012.

According to Paul Ashworth of Capital Economics, “payrolls may be supported by automakers shutting down fewer plants than normal to prepare the assembly lines for producing next year’s models.”

As the seasonal adjustment process “expects” auto employment to fall by more, Ashworth explained, this will generate a rise in payrolls after seasonal adjustment. The same effect has pushed initial jobless claims lower.

U.S. auto sales are out on Thursday. Total vehicle sales should be solid in July, totaling 15.8 million units, according to economists surveyed by Thomson Reuters. This would be slightly lower than June’s strong 15.9 million print, but up from the average of 15.3 million in the first half of the year.

Pent-up demand from constrained household formation in recent years should continue to support this sector. There has also been a growing need for trucks, spurred by greater construction.

In response to robust auto demand, the Big 3 U.S. automakers, Ford Motor Company (NYSE: F), General Motors Company (NYSE: GM) and Chrysler Group, decided to forgo the annual two-week shutdowns that normally occur in July at some or all of their factories — instead of using the time to retool, they plan on maintaining production lines.

That said, things aren’t all rosy on the jobs front.

Job growth recently has been driven by leisure and hospitality as well as retail trade — two of the sectors with the lowest-paying jobs and fewest working hours. “This has sparked concern about a poor composition of job growth,” Bank of America Merrill Lynch's Michelle Meyer said in a note to clients.

“We did see a spike in part-time hiring last month, but the data tend to be noisy and it is the first month we have seen a decisive move higher,” Meyer added.

Friday’s jobs report is expected to show that average hourly earnings rose by 0.2 percent after rising by 0.4 percent in June. Meanwhile, the length of the average workweek is expected to have held steady at 34.5 hours.

“You need to see job creation of 250,000 a month for six months at least and we have 200,000. That’s not enough,” said Euler Hermes Chief Economist Dan North. “We are still down 2 million jobs from before the recession started and that’s five years later.”

Another area of concern is the duration of unemployment. North noted that the highest average duration before this recession was 21 weeks. In 2011, it soared to a record high of 41 weeks and remains at 37 weeks today. “The huge gap between the two suggests that there is a segment of the unemployed who have been unemployed for a very long time, and as a result have probably become unemployable,” North said.

Leading up to the July employment report, market participants will receive a few other labor-related reports, including the June ADP estimate of private payrolls and weekly jobless claims.

On Wednesday, the ADP report is likely to show that businesses added 180,000 jobs in July, after creating 188,000 jobs in June.

However, the ADP employment report has not been a useful real-time predictor of the change in private payrolls reported by the Bureau of Labor Statistics. Since the start of the new methodology in the October 2012 report, ADP private payrolls have tended to slightly underestimate the growth in BLS private payrolls.

On Thursday, investors will get the weekly initial jobless claims report. After falling in April and edging up in May, initial jobless claims have moved mostly sideways in June. The net result is a modest downtrend relative to its earlier pace. Claims have averaged 346,000 so far in the second quarter versus 356,000 in the first quarter and 377,000 in the fourth quarter of last year.

Federal Reserve

A 7 percent unemployment rate has become a new, all-important threshold for Fed policy now that Chairman Ben Bernanke has loosely tied it to the end of asset purchases. Under the Fed’s current projections, that threshold is expected to be breached around mid-2014.  

The unemployment rate probably retreated to 7.5 percent in July, matching April’s four-year low, from 7.6 percent in June, according to the median forecast of 63 economists in a Thomson Reuters survey ahead of the government report. The national jobless rate peaked at a quarter-century high of 10 percent in October 2009.

While policymakers are unlikely to trim the pace of its asset purchases at this week’s meeting, most analysts and investors expect the FOMC members to pull the trigger in September or December.

Euler Hermes’ Dan North believes personal factors also are involved in the Fed’s decision on QE tapering. “I think the human factor is probably as strong as anything in doing that taper,” North said.

He added: “Bernanke, who’s clearly not going to be the Fed’s chairman anymore, may want to leave a little bit of a legacy in the sense that he started all these QE programs, it’s a highly unusual and very aggressive monetary policy, and I think he may want to step out on the note saying, ‘I did my job, and now I start to unwind it too.’”

Bernanke’s second four-year stint at the central bank ends Jan. 31, 2014.

“Entering into QE2, QE3, QE4, was a very-high risk, low-return policy,” North said. “If he leaves things the way they are, I think it’s a very open legacy there.”