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 September 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.
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.
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 percent, the lowest since June 2008, from 10.4 percent in July.
Jobs gains were spread across nearly all sectors of the economy in August. The energy and manufacturing sector, which are grappling with last year's sharp drop in crude oil prices and a strong dollar, were the exception.
Construction payrolls rose 3,000 last month on top of the 7,000 jobs added in July. Mining and logging employment fell by 10,000 jobs last month. Manufacturing payrolls fell 17,000, despite robust demand for autos.
The increase in hourly earnings left them 2.2 percent above their year-ago level, still well below the 3.5 per cent growth rate economists consider healthy. Some analysts think earnings are being held back by falling wages in oil field services.
But a tightening labor market and decisions by several state and local governments to raise the minimum wage should eventually translate into faster earnings growth and give the Fed confidence that inflation, which collapsed with oil prices, will move closer to its 2 percent target.
A number of retailers, including Walmart, Target and TJX Cos, have increased pay for hourly workers.