US job growth at 8-month low, labour force shrinks

Sep 06, 2014 12:00 AM

US employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs providing a cautious Federal Reserve with more reasons to wait longer before raising interest rates.

Nonfarm payrolls increased 142000 last month after expanding by 212000 in July the Labor Department said on Friday. The jobless rate fell one-tenth of a percentage point to 6.1 percent but that was partly because people dropped out of the labor force.

Data for June and July were revised to show 28000 fewer jobs created than previously reported. In addition manufacturing saw no job growth and retail payrolls declined for the first time since February.

'The underlying message appears to be that the US labor market recovery which until this month appeared to have been firing on all cylinders has hit a snag' said Millan Mulraine deputy chief economist at TD Securities in New York. The report did however suggest that some of the slack in the labor market was being taken up.

US stocks opened down slightly while price for US Treasury debt rose and the dollar fell against a basket of currencies. Interest rate futures which had been pointing to a likely rate hike in June of next year rose to suggest less of a chance. However they still showed dealers expect the Fed to bump up borrowing costs in July.

Economists had expected payrolls to increase by 225000 in August. Many analysts said they were taking the report with a grain of salt given that it was at odds with other labor market indicators such as first-time applications for unemployment benefits which are hovering near their pre-recession levels. In addition manufacturing and service sector surveys showed strong employment growth in August and household perceptions of the labor market brightened significantly.

Gaining 'The preponderance of evidence is that the economy is still gaining a lot of traction' said Russell T. Price senior economist at Ameriprise Financial in Troy Michigan. Fed Chair Janet Yellen has expressed concern about sluggish wage growth the still-elevated numbers of Americans working part-time even though they want full-time employment and Americans still suffering from long spells of joblessness. The US central bank which has held benchmark interest rates near zero since December 2008 has pointed to these metrics as evidence of 'significant underutilization' of labor market resources that merits a stimulative monetary policy.

The labor force participation rate or the share of working-age Americans who are employed or at least looking for a job fell to 62.8 percent in August from 62.9 percent in July. But other metrics on Yellen's so-called dashboard showed improvement. 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 12.0 percent the lowest level since October 2009. The gap between that figure and the official unemployment rate narrowed a further sign of tightening labor market conditions.

At the same time the number of long-term unemployed Americans was the lowest since January 2009. Average hourly earnings rose 6 cents in August which marked an acceleration from July. Still the year-on-year change held at 2.1 percent which suggests little buildup of wage-related inflation pressure. The Fed next meets on Sept. 16-17 to debate the course of monetary policy. The private sector accounted for the bulk of the increase in payrolls in August with the number of jobs increasing 134000 after rising 213000 in July. Government employment increased 8000 as state governments hired teachers at the start of the new school year. Manufacturing payrolls were the weakest in a year. The sector had added a hefty 28000 jobs in July which reflected a decision by automakers to keep assembly lines running in the summer. Auto payrolls fell 4600 the first decline since March.

Construction employment advanced 20000 rising for an eighth straight month. The length of the average workweek held steady at 34.5 hours for a sixth month in a row. The slowdown was unexpected after most recent economic data had suggested that the economy was growing at a healthy pace. Some analysts noted that other measures of the job market remain solid and that August's figures could mark just a temporary slowdown. The figures 'will inevitably spark speculation that the US recovery is somehow coming off the rails again' said Paul Ashworth an economist at Capital Economics. 'However we're not too concerned by what is probably just an isolated blip.'

The weaker-than-expected figures make it unlikely that the Federal Reserve will speed up its timetable for raising interest rates. Most analysts expect the first rate hike around mid-2015. August's job growth was well below the average monthly increase of 212000 over the past 12 months. Job gains have averaged 207000 a month in the past three months still a healthy pace. Patrick O'Keefe director of economic research at the accounting and consulting firm CohnReznick said he found Friday's report puzzling. O'Keefe noted that the tepid job growth was inconsistent with surveys showing businesses and consumers gaining confidence. He also said August's job figures tend to be unusually volatile and are typically revised later as government statisticians adjust for unusual seasonal factors such as the reopening of school and the Labor Day holiday.

The biggest drops in hiring last month occurred in retail which shed 8400 jobs after gaining 21000 in July and in manufacturing where employment was flat down from a gain of 28000 in July. Transportation and warehousing added only 1200 jobs after adding 19100 in July. Recent reports of strength in manufacturing and construction in particular had raised hopes that hiring in August would be solid. Factories expanded last month at the best rate in more than three years. Factory output is being driven in part by auto sales. Americans bought more cars last month than in any other August in 11 years. And builders increased spending on construction in July by the most in more than two years. In addition fewer Americans are seeking unemployment benefits which means that companies are laying off few workers.

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