Employers added 173,000 jobs in Aug., jobless rates falls to 5.1%

Paul Davidson | USA TODAY

Show Caption Hide Caption Unemployment level lowest since 2008 The unemployment rate dipped to 5.1%, the lowest since April 2008, when the jobless rate was 5%, according to data from the U.S. Bureau of Labor Statistics. The economy created 173,000 new jobs last month.

Payroll growth slowed in August as employers added 173,000 jobs in a key report that could help the Federal Reserve decide whether to raise interest rates later this month.

The unemployment rate, which is calculated from a separate survey of households, fell from 5.3% to 5.1%, lowest since March 2008.

Economists surveyed by Bloomberg expected employment gains of 218,000, according to their median forecast.

Businesses added 140,000 jobs last month, fueled by strong advances in health care, professional and business services, and leisure and hospitality. Federal, state and local governments added 33,000.

Partly offsetting the disappointing report is that job gains for June and July were revised up by a total 44,000.

Wage growth picked up moderately as average hourly earnings rose 8 cents to $25.09 after dipping in June, and are up 2.2% the past year, slightly faster than the tepid 2% pace so far in the recovery. The Fed is seeking signs of faster wage that would indicate stronger inflation as it considers increasing its benchmark interest rate.

Although pay growth is improving, "It's not where it should be," Deputy Labor Secretary Chris Lu said in an interview, noting the Obama Administration continues to seek a higher federal minimum wage and expanded overtime pay.

The report is the most significant the Fed will review before its September 16-17 meeting. Until recent financial market turmoil, Fed officials had been signaling there was at least a reasonable chance they would raise the fed funds rate at the gathering for the first time in nine years.

At least one Fed policymaker indicated last week a rate hike is now less likely, though Vice Chairman Stanley Fischer said economic reports in coming days will be pivotal. Some economists said job gains of at least 250,000 in August were needed to coax Fed policymakers into taking a step that could further roil jittery markets.

Yet the effect Friday's report could have on the Fed's decision is unclear, in part because Labor will revise Friday's August tally twice. Initial estimates in August have been unusually low the past five years because of seasonal factors, with revisions adding an average 77,000 jobs each year.

"August is especially tricky," because of the varying time frames for the start of the school year and the return of teachers and other staffers, Lu says.

Carl Tannenbaum, chief economist of Northern Trust, says job gains over 250,000 could have prodded the Fed into acting this month, while below 150,000 likely would have prompted policymakers to delay.

“Unfortunately, I think, for Fed watchers, today’s numbers were not conclusive,” says Tannenbaum, a former Fed official. Citing the near-normal 5.1% in the rate, he says he thinks “there’s a slightly better than 50% chance (the central bank) will move” this month.

“Were getting very close to the Fed’s goal of maximum employment,” he says, though he acknowledged inflation remains well below the Fed’s 2% annual target

In a positive sign, the average work week last month picked up to 34.6 hours 34.5 hours. Employers tend to increase the hours of existing workers before adding new ones.

Less encouraging is that the number of part-time workers who prefer full-time jobs increased by 158,000, but their total had fallen by nearly 200,000 the previous month.

And a broader measure of unemployment that includes those workers, the unemployed and discouraged workers who have stopped looking for jobs dipped to 10.3% from 10.4%.

Health care led the payroll gains, adding 56,000 jobs; professional and business services and leisure and hospitality each added 33,000; and financial activities, 19,000. But manufacturers slashed 17,000 jobs as a strong dollar continued to hurt exports and low oil prices crimped energy spending. As a result, the mining and logging industry also continued to lay off workers, chopping 10,000.

Other recent reports have suggested job growth last month roughly maintained its solid monthly average of slightly more than 200,000 in 2015. Private payroll processor ADP said businesses added 190,000 jobs in August. And a survey of the service sector showed hiring picked up more slowly last month but was still healthy.

While consumer spending and the recovering housing market have underpinned moderate economic and payroll growth, the rising greenback and low oil prices have hampered exports, factory output and energy investment.