U.S. Labour Market Strengthens Despite Slower Job Growth

U.S. job growth slowed in August, but the unemployment rate dropped to a near 7 1/2-year low and wages accelerated, keeping alive prospects of a Federal Reserve interest rate hike later this month.

Non-farm payrolls increased 173,000 last month after an upwardly revised gain of 245,000 in July, the U.S. Department of Labor said on Friday. August’s gain was the smallest in five months as the factory sector lost the most jobs since July, 2013.

The jobs count, however, may have been tarnished by a statistical fluke that has often led to sharp upward revisions to payroll figures for August after initial weak readings. Indicating the hiring slowdown was likely not reflective of the economy’s true health, the jobless rate fell two-tenths of a point to 5.1 per cent, its lowest level since April, 2008. In addition, payrolls data for June and July were revised to show 44,000 more jobs created than previously reported, bringing the average job gains for the past three months to a solid 221,000. Average hourly earnings increased 8 cents, the biggest rise in seven months, and the length of the average workweek also expanded.

“The payrolls data is certainly good enough to allow for a Fed rate hike in September,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York. “The big question is still whether financial market volatility will scupper the plans.” Investors seemed to agree. U.S. stocks, which could be pressured by higher rates, were trading lower, while yields on U.S. government debt rose. The dollar was little changed against a basket of currencies.

While the mixed report did little to alter views that the U.S. economy remains vibrant despite volatile global financial markets and slowing Chinese growth, it could further complicate the Fed’s decision at a policy meeting on Sept. 16-17. In the wake of a recent global equities sell-off, financial markets significantly scaled back bets on a September rate hike over the past month. But Fed vice-chairman Stanley Fischer told CNBC last week it was too early to decide whether the stock market rout had made an increase less compelling.

“With this jobs report … the Federal Reserve finds itself in a real uncertainty jam,” said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, Calif. Economists in a Reuters survey had forecast non-farm payrolls increasing by 220,000 last month, but they had also warned that the model used to smooth the data for seasonal fluctuations is often thrown off at the start of a new school year.

They said the data could be further muddied because of a typically low response rate from employers to the government’s payroll surveys in August. But the evidence of a tightening labour market added to a string of upbeat data, including figures on automobile sales and housing, that has suggested the economy was moving ahead with strong momentum after growing at a robust 3.7-per-cent annual rate in the second quarter. The decline in the unemployment rate brought it into the range that most Fed officials think is consistent with a low but steady rate of inflation, and would likely bolster their expectation that a pick-up in wages will help lift inflation toward their 2-per-cent target.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.3 per cent, the lowest level since June, 2008. In August, construction payrolls rose 3,000 on top of the 7,000 jobs added in July. Mining and logging employment fell by 10,000 jobs, the eighth-straight monthly decline.

The sector has shed 90,000 jobs so far this year, with industries that support mining activity accounting for 80 per cent of the drop. Oil-field giants Schlumberger and Halliburton and many others in the oil and gas industry have announced thousands of job cuts this year. Manufacturing payrolls slid 17,000 as sharp declines at metals, machinery and food industries offset a solid increase in employment in the automobile sector.

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