Jobs Report Keeps Sept Rate Hike On Table

Job creation slows, but wages pick up and unemployment rate falls.

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Reviewed by: Lucia Mutikani
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Edited by: Lucia Mutikani

WASHINGTON (Reuters) – U.S. payrolls rose less than expected in August, but a drop in the unemployment rate to a near 7 1/2-year low of 5.1 percent and an acceleration in wages kept alive prospects of a Federal Reserve interest-rate hike later this month.

Nonfarm payrolls increased 173,000 last month as the manufacturing sector lost the most jobs since July 2013, the Labor Department said on Friday. It marked a slowdown from July's upwardly revised gain of 245,000 and was the smallest rise in employment in five months.

Upward Revision In August
The report, however, may have been tarnished by a statistical fluke that in recent years has frequently led to sharp upward revisions to payroll figures for August after initial weak readings.

Indicating that the slowdown in job growth was likely not reflective of the economy's true health, payrolls data for June and July were revised to show 44,000 more jobs created than previously reported. In addition, average hourly earnings increased 8 cents, the biggest rise since January, and the workweek rose to 34.6 hours.

"The payrolls data is certainly good enough to allow for a Fed rate hike in September. The big question is still whether financial market volatility will scupper the plans," said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

The dollar trimmed losses against a basket of currencies on the data, while prices for U.S. Treasury debt pared gains.

Fed Picture No Clearer
While the report may not change views that the U.S. economy remains vibrant amid volatile global financial markets and slowing Chinese growth, it could further complicate the Fed's decision at a policy meeting 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.

A Reuters survey of economists had forecast nonfarm payrolls increasing by 220,000 last month, but economists warned that the model the government uses to smooth the data for seasonal fluctuations might not adequately account for the start of a new school year.

Slow Employer Response Rate
They said the data could be further muddied because of a typically low response rate from employers to the government’s August payrolls survey. A Labor Department official confirmed that the first payrolls estimate in August typically was revised higher.

Still, the improving labor market adds to a string of upbeat data, including figures on automobile sales and housing, that has suggested the economy was moving ahead with strong momentum early in the third quarter after growing at a robust 3.7 percent annual rate in the April-through-June period.

The jobless rate's two-tenths-of-a-percentage-point drop took it to its lowest level since April 2008, and brought it into the range that most Fed officials think is consistent with a low but steady rate of inflation.