The US economy recorded a sharp fall in job creation in August, raising questions over whether the Federal Reserve will raise interest rates before the end of the year.

Economists had expected the US to add about 180,000 jobs over the month. But the latest figures from the Bureau of Labor Statistics showed a marked slowdown on the previous month, with a rise of 156,000 jobs. The figure for July was revised down to 189,000 from an initial 209,000, while for June number was reduced from 231,000 to 210,000, compounding the weaker picture.



The figures made for disappointing reading for Donald Trump, who hasput jobs and wage growth among the top priorities for his administration. There was a modest rise in the unemployment rate from 4.3% to 4.4%, as the number of unemployed people in the US economy stood at 7.1 million.

Average hourly earnings rose by 3c to $26.39 (£20.34), after rising by 9c in July. Over the past 12 months, average hourly earnings have increased by 65c, or 2.5%.

The August jobs report showed the rate of growth in US employment to be below the average of 176,000 per month so far this year – the average gain in 2016 was 187,000. The services sector had the weakest growth, as employment increased by only 95,000, little more than half the size of gains made in recent months.

The August report, however, may have included statistical anomalies that will be ironed out in future. The data will probably be revised a couple of times and may end up showing a brighter picture, according to Ian Shepherdson, founder of research consultancy Pantheon Macroeconomics. “We expect a rebound in September,” he added.

While the figures for last month were disappointing, there is potential for an even weaker outlook for the US economy, should damage from Tropical Storm Harvey continue to linger. The Department of Labor said there was “no discernible effect on the employment and unemployment” rate from the storm last month because the survey was compiled before it hit.

While it could still be too early to do a full damage assessment, Harvey has the potential to have a negative effect on the US economy in the third quarter. The storm means there will be zero economic output in the affected states of Texas and Louisiana, which could hurt the wider economy.

With a weaker outlook for employment, the August jobs report adds an additional problem for the Federal Reserve to consider as it weighs a further interest rate rise before the end of the year. There are still some expectations for an increase in December, although a slowing jobs market, the fallout from Harvey and low levels of inflation could build a case for maintaing the status quo.

Dennis de Jong, managing director at currency trading firm UFX, said: “A stronger than expected reading would have made that almost a certainty, now it’s very much up in the air.”



Investors have been looking for a better sense of the next Fed policy move by it chair, Janet Yellen, who gave away few clues last month at a meeting of central bankers at Jackson Hole, Wyoming. There are further potential pitfalls ahead, as Washington faces a showdown over the debt ceiling, a statutory limit on how much money the US can borrow that can only be increased by Congress, which could rattle markets, and delay action by the Fed.