Payrolls rose 173K in August as jobless rate drops to 5.1%

WASHINGTON – Employers added 173,000 workers in August and the jobless rate dropped to 5.1 percent, a level that the Federal Reserve considers to be full employment.

The gain in payrolls, while less than forecast, followed advances in July and June that were stronger than previously reported, the Labor Department said Friday. The unemployment rate is the lowest since April 2008. Average hourly earnings climbed more than forecast and workers put in a longer workweek, the report also showed.

Persistent hiring indicates employers were upbeat about America’s demand prospects leading up to mounting concerns of further deterioration in emerging economies. Fed policy makers meeting in less than two weeks will weigh resilient U.S. employment conditions against the recent turmoil in world financial markets as they debate the timing of any interest-rate increase.

“The labor market is clearly still improving,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., said before the report. “Employment growth is more than strong enough to keep the unemployment rate coming down, just given the rate of growth in the labor force.”

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Job gains in August were helped by a jump at local governments, mainly in education. Employment also increased in health services and in the leisure and hospitality sector. Factory payrolls, on the other hand, slumped by 17,000 last month, the most since July 2013.

The median forecast in a Bloomberg survey of economists called for a 217,000 increase in total payrolls. Estimates in the Bloomberg survey of 97 economists ranged from job gains of 130,000 to 253,000. Revisions to prior reports added a total of 44,000 jobs to overall payrolls in the previous two months.

Average hourly earnings increased 0.3 percent from the prior month and 2.2 percent over the past year.

The government’s survey week ended on the 15th of the month, a day when employees receiving bi-monthly checks get paid. That often tends to boost earnings, according to economists at Morgan Stanley in New York. The last time this occurred was November.

August estimates

The Labor Department’s initial estimate of August payrolls has tended to disappoint compared with consensus projections and are typically revised higher in ensuing months.

From 2005 to 2014, forecasters over-estimated the initial August payrolls print seven times, including in each of the past four years. Excluding annual and benchmark revisions, the Labor Department marked up its first estimate in subsequent months in eight years over the same period.

To calculate the data, the Labor Department surveys businesses and households for the pay period that includes the 12th of the month. The survey week last month preceded financial turmoil starting Aug. 18 as investors gauged prospects for China’s economy after a surprise move to depreciate the yuan.

The agency’s survey of households showed the participation rate, which indicates the share of working-age people in the labor force, held at 62.6 percent.

The average workweek for all employees increased six minutes to 34.6 hours, the Labor Department’s report also showed.

The data will help Fed officials judge whether the labor market is showing the ongoing improvement necessary to merit an interest-rate increase at their Sept. 16-17 gathering. Some policy makers have said financial markets and a weakening Chinese growth outlook, muddy the argument for a rate hike this month.

The Fed is “following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual,” Federal Reserve Vice Chairman Stanley Fischer said Saturday at the Kansas City Fed’s annual retreat in Jackson Hole, Wyo.

Fischer left the door open to a rate increase this month, arguing that policy makers shouldn’t wait until inflation reaches the Fed’s 2 percent goal amid healthier labor market conditions.

Economic indicators ahead of the August payrolls have been mixed.

Gross domestic product, the value of all goods and services produced, rose at a 3.7 percent annualized rate in the second quarter, exceeding all projections in the Bloomberg survey of economists and up from the previous estimate of 2.3 percent, the Commerce Department reported Aug. 27.

The Institute for Supply Management’s non-manufacturing index, which covers industries that account for almost 90 percent of the economy, held close to a 10-year high in August.

Manufacturing has been less upbeat. The ISM’s factory index fell to the lowest level since May 2013.

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