Employers added disappointing 151,000 jobs in August

U.S. payroll growth slowed in August after two booming months as employers added 151,000 jobs, underscoring that employment growth may be moderating and lowering the odds of a Federal Reserve interest rate hike this month.

The unemployment rate was unchanged at 4.9%, the Labor Department said Friday.

Economists had forecast 180,000 job gains, according to a Bloomberg survey.

The report is the most significant the Fed will review before deciding whether to raise interest rates at a September 20-21 meeting. Some economists said gains of at least 200,000 would make a rate hike likely while others said blockbuster advances of more than 250,000 were needed to convince wary Fed policymakers.

The Dow Jones industrial average was up about 90 points in early trading at 18,509 as the tempered job gains eased traders' concerns that the Fed was poised to lift interest rates this month.

“The data-dependent Fed will most likely see the payroll numbers as taking pressure off any immediate need to hike interest rates," Chris  Williamson, chief business economist at IHS Markit, wrote in a note to clients.

Some Fed officials remain concerned about lifting rates amid excessively low inflation and economic growth averaging just 1% at an annual rate the past three quarters. Sluggish exports and business investment spurred by a weak global economy and low oil prices have offset strong consumer spending. The worries have prompted the Fed to hold its key rate steady after raising it in December for the first time in nine years.

Also muddying the picture: The Labor Department has underestimated August employment gains the past five years by an average 62,000, based on subsequent revisions, according to an analysis by High Frequency Economics. Economists have pointed to varying starts to the school year and the completion of summer jobs, as well as employment losses after the 2008 financial crisis -- all of which can make seasonal adjustments of the data more challenging. That could ease any concerns caused by a weak August tally, though economists said a poor showing still would likely prompt the Fed to hold off on a rate hike.

Last month, businesses added 126,000 jobs, led by health care, leisure and hospitality, and professional and business services. Federal, state and local governments added 25,000.

Job gains for June and July were revised down by a trivial 1,000 and those months still produced a blockbuster average of 273,000.

Average hourly earnings rose 4 cents to $25.73 and are up 2.4% the past year, down from 2.6% in July. Wage growth has picked up this year from the roughly 2% pace of the recovery but has yet to bust out despite the low unemployment rate. The Fed would like to see sharper pay gains before raising interest rates again.

Other mild negatives included a drop in the average work week to 34.3 hours from 34.4 hours and a 3,100 decline in temporary workers. Employers who reduce the hours of existing workers and cut back on temps may not be inclined to step up hiring substantially in future months.

Job gains were subdued across the board in August. The health care sector added 36,000 jobs; leisure and hospitality added 29,000; professional and business services, 22,000; and retailers, 15,000.

Manufacturers coping with a weak global economy and the oil slump cut 14,000 jobs. And construction firms, which are struggling to find skilled workers, trimmed 6,000.

Monthly job growth has averaged 181,000 so far this year, below averages of 229,000 last year and 251,000 in 2014.Many economists cite a natural downshift as the low unemployment rate provides employers with a smaller pool of available workers.

Some labor market barometers have sagged recently. Payroll processor ADP estimated that businesses added 177,000 jobs in August. And a survey of manufacturing activity showed falling employment.

But jobless claims, a measure of layoffs, remain near all-time lows.


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