The US economy added 173,000 jobs in August, less than expected, while the unemployment rate dropped to 5.1%, surpassing expectations.
The numbers released by the Department of Labor on Friday are likely to complicate matters for the Federal Reserve, which meets later this month and will discuss raising interest rates for the first time since the recession. This is the last jobs report before the Fed meeting.
Economists had expected the non-farm payroll figures to increase by 220,000 jobs and the unemployment rate to reach a seven-and-a-half-year low of 5.2% in August. The 5.1% unemployment rate is the lowest since March 2008.
“The headline number is a little softer than what we were expecting, but I think the overall report is quite good,” Gus Faucher, senior economist at PNC, said. “Traditionally the August reporting is really a bit soft, but then you have good upward revisions over the next couple of months and so I would not be surprised at all to see that this time around. That’s one reason why you need to look past the headline number.”
A Reuters analysis found that August employment reports between 2005 and 2014 often underestimated jobs growth initially and were revised up by on average 58,000 jobs in the next month’s report.
“The Fed is well aware of that and so they are going to take that into account when they look at the August number and say that we would not be surprised to see some upward revisions to job growth in August,” said Faucher. “Even with these August numbers, the job growth over the last three months has still been 221,000 which is above the level that we need to keep up with growth in the labor force so it’s quite good.”
Both June and July’s jobs numbers were revised up. June’s job growth was revised from 231,000 jobs created to 245,000 and July’s from 215,00o to 245,000, a combined total of 44,000 more jobs.
Additionally, the increase in wages was higher than Wall Street expected at 0.3%. Over the year, wages have grown by 2.2%.
“Wages are the unfinished business of this recovery,” said Chris Lu, US deputy labor secretary.
According to Lu, Friday’s jobs report continues to show a steady job growth. He pointed out that there have been 66 months of consecutive job creation.
“It’s the longest streak on record,” he said.
However, in addition to lower-than-expected job growth, Friday’s report found the US labor force participation rate remained steady at 62.6%. The percentage of people in the workforce has not been this low since 1977. The figure suggests long-term unemployed Americans are still skeptical of the US labor market and have yet to rejoin the labor force and look for work.
An increase below 200,000 jobs comes as the Fed is also considering the impact on the US economy over continued anxiety about the weakening Chinese economy.
Worries over China and rising rates have caused panic on global stock markets. In August, the Dow Jones Industrial Average had its worst month in three years. The DJIA had gone on to plunge 2.8% on Tuesday, then rallied early on Thursday only to drop again by the end of the day with investors remaining cautious about the jobs report.
A week ago, while speaking at an annual conference in Jackson Hole, Wyoming, the Fed vice-chairman, Stanley Fischer, said that “the door is definitely open” toan interest rate increase in September. However, in an interview with CNBC, he added that “the change in circumstances which began with the Chinese devaluation is relatively new and we are still watching how it unfolds”.
“I wouldn’t want to go ahead and decide right now what the case is,” he said.
Friday’s job report settles little about the Fed’s decision, leaving the next two weeks “essentially as unsettled as they were prior to the report’s release”, according to Dan Greenhaus, chief strategist at BTIG research.
“We doubt this report meaningfully changes the Fed’s outlook on a September rate hike. While the headline figure was less than expected, revisions mitigate that miss while the other parts of the report, specifically the unemployment rate drop and earnings increase, will be welcomed by the Fed,” he explained.
“If one was inclined to believe the Fed would not hike in September, the headline miss works in your favor. If one felt the opposite, the drop in the unemployment rate along with a rebound in earnings works in your favor.”