The U.S. economy is poised to extend the longest expansion in history this year, with a robust jobs market, a confident consumer and low interest rates supporting stocks and easing the impact of the damaging trade war between Washington and Beijing.

Job creation remains core to the country's ongoing growth, given that consumer spending comprises around two-thirds of the economy, and Friday's non-farm payroll report is expected to show another solid set of figures when the Labor Department releases the August assessment at 8:30 am eastern time. However, a stronger-than-expected reading could complicate the Federal Reserve's near-term decisions on interest rates, particularly if wage growth were to surprise to the upside, and frustrate call from President Donald Trump for lower borrowing costs and a weaker U.S. dollar. 

"US economic data suggests that the domestic-focused, consumer-orientated parts of the US economy continue to perform well while the more international and manufacturing-related parts of the economy are struggling," said ING's chief international economist James Knightley. "This is clearly a quandary for the Federal Reserve who appear reluctant to acquiesce to Presidential demands and market expectations of aggressive cuts to interest rates. Of course, trade discussions remain critical to the outlook."

U.S. employers likely added 158,000 new jobs to the economy last month, according to median Wall Street forecasts, with average hourly wage growth slowing modestly to 3.1% and the headline unemployment rate holding at a multi-decade low of 3.7%.

Those estimates, however, were largely gathered before a stronger-than-expected reading for private sector job creation from the payroll processing group ADP, which showed 195,000 new positions for August, the highest in four months. That, as well as firmly activity in the economy's vital services sector and a stronger U.S. dollar, suggest robust consumer demand heading into the final months of the year.

Traders are pricing in a 93.5% chance of a 25 basis point rate cut when the Fed concludes its two-day policy meeting on September 18, according to the CME Group's FedWatch tool, a move that would lower the current FedFunds rate to a range of 1.75% to 2%. Projections for a follow-up cut in October, however, have stalled at just over 50% now that job creation looks solid and the headline unemployment rate holds near fifty-year lows.

That said, a surprise contraction in manufacturing output last month, according to the August ISM survey, and the ongoing uncertainty surrounding trade talks with China, Europe and Japan have taken their toll on both export growth and broader investor sentiment, even if they've yet to filter through into weaker employment growth.

Manufacturing jobs, while politically influential, only comprise around 9% of the overall workforce, and cutbacks or slowdowns don't usually hold down broader wage increases if the rest of the economy continues to perform. The Atlanta Fed's GDPNow forecasting too, a real-time measure of economic growth, suggests a third quarter expansion of around 1.5%, down from just over 2% over the three months ending in June.

Still, despite that easing, average hourly wage pressures continue to rise, and will likely hit a three-month annualized rate of 3.6% when the August report is published later today, a reading that will surely add to inflation concerns now that core consumer prices have bumped past the Fed's 2% threshold. 

"The underlying story here, we think, is that employees are becoming a bit more willing to recognize that the very low unemployment rate gives them more power to demand bigger wage raises," said Ian Shepherdson of Pantheon Economics. "This shift has taken much longer than in previous cycles, likely because the trauma inflicted on the workforce by the crash of 2008 was much greater than in previous recessions, so it has faded slowly."