US job growth slows, unemployment rate falls to 5.1%

The US unemployment rate dropped to a near 7-1/2- year low of 5.1 per cent.
The US unemployment rate dropped to a near 7-1/2- year low of 5.1 per cent.PHOTO: AFP

WASHINGTON (REUTERS) - US job growth rose less than expected in August, which could dim prospects of a Federal Reserve interest rate hike later this month, even as the unemployment rate dropped to a near 7-1/2- year low of 5.1 per cent and wages accelerated.

Nonfarm payrolls increased 173,000 last month as the manufacturing sector lost the most jobs since July 2013, after an upwardly revised 245,000 rise in July, the Labor Department said on Friday. It was the smallest gain in employment in five months.

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.

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.

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.

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 and the workweek rose to 34.6 hours.

While the report may not change views that the US economy remains vibrant amid volatile global financial markets and slowing Chinese growth, it could make Fed officials hesitant to push borrowing costs higher 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.

Still, the labor market is improving and 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.