U.S. Job Growth Misses Expectations, May Delay Fed Tapering

august jobs report Economy
Alan Diaz/AP

By Lucia Mutikani

WASHINGTON -- U.S. job growth was less than expected in August and the unemployment rate dropped to a 4½ year low as workers gave up the search for work, which could delay the Federal Reserve scaling back its massive monetary stimulus later this month.

Nonfarm payrolls increased 169,000 last month, the Labor Department said Friday, adding to signs that third-quarter economic growth may have slowed down a bit. The unemployment rate fell to 7.3 percent, the lowest since December 2008. Economists polled by Reuters had expected job gains of 180,000 last month and for the unemployment rate to hold steady at 7.4 percent. Not only was hiring less than expected last month, the job count for June and July was revised to show 74,000 fewer positions added that previously reported.

In addition, the participation rate - the share of working-age Americans who either have a job or are looking for one - dropped to its lowest level since August 1978.

The closely watched jobs report will provide a crucial piece of evidence for the Fed as it debates the future of its $85 billion per month bond-buying program, and it will set the tone for global financial markets.

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Policymakers from the U.S. central bank meet on Sept. 17-18 and had been widely expected to turn down the dial on the purchases they have been making to keep interest rates low and boost growth.

Fed officials have made clear that they would base their decision on the progress the labor market has made since they launched their third round of 'quantitative easing' a year ago. When they pulled the trigger, they were looking at a jobless rate that stood at 8.1 percent.

The employment report suggested the economy was struggling to regain momentum after stumbling early in the third quarter.

Consumer spending, home building, new home sales, durable goods orders and industrial production all weakened in July.

The economy grew at a 2.5 percent annual pace in the April-June period. Many economists had expected an acceleration in momentum in the second half of the year.

The employment report is at odds with other data that have shown signs of improvement in labor market conditions. The number of Americans filing new applications for jobless benefits is near five-year lows. A gauge of service sector employment released on Thursday hit a six-month high in August.

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Other details of the employment report were mixed, with a bounce in average hourly earnings and the length of the average workweek, which slipped in July.

Average hourly earnings rose five cents.

The length of the workweek rose back to an average of 34.5 hours from a six-month low of 34.4 hours in July. The drop had been blamed on employers' shifting some positions to part-time in an attempt to curb costs they might face under the Affordable Care Act.

Last month, the private sector accounted for the bulk of the job gains, but government payrolls increased 17,000. Factory employment bounced back after falling in July.

Construction payrolls were flat in August. There was a another month of strong job gains in the retail sector, while leisure and hospitality employment also posted solid increases.

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Originally published