Jobless rate falls to 5.1%, a 7-year low

Payrolls add 173,000, hiring seen solid; Fed step awaited

Graph showing unemployment rate.
Graph showing unemployment rate.

WASHINGTON -- The U.S. unemployment rate fell to a seven-year low in August as employers added a modest 173,000 jobs, a key piece of evidence for the Federal Reserve in deciding later this month whether to raise interest rates from record lows.

The unemployment rate fell to 5.1 percent -- a level the Fed says is consistent with a normal economy -- from 5.3 percent in July, the government said Friday. It's the lowest unemployment rate since April 2008.

"The job market is rocking and rolling," said Mark Zandi, chief economist for forecaster Moody's Analytics. "Ignore the weak job gain in August. It will be revised substantially higher in coming months. The economy is generating over 200,000 jobs per month."

Though hiring in August was the slowest in five months, the government revised up its estimates of job growth for June and July by a combined 44,000. From June through August, a robust 221,000 jobs a month were added, up from a 189,000 average from March through May. Three years of solid hiring have put 8 million Americans to work.

Friday's report appeared neither so strong nor so weak as to tilt the Fed decisively toward either a rate increase or against one. But it is one of the last snapshots of the economy Fed policymakers can weigh before their Sept. 16-17 meeting.

"The slack in the labor market is diminishing quite rapidly," said Michael Feroli, chief U.S. economist at JPMorgan Securities LLC in New York, and a former Fed board economist. "That should leave the Fed close to liftoff. September is what they should do. The labor market, overall, is solid."

Investors appeared disappointed by the report, perhaps because it could encourage Fed officials to lift rates. The Dow Jones industrial average tumbled 272 points Friday to end the week at 16,102.38, while broader stock indexes also fell.

Many economists think the Fed will decide in two weeks to raise its benchmark rate for the first time in nine years. At the same time, stock market turbulence, a persistently low inflation rate and a sharp slowdown in China have complicated the decision.

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 last week at the Kansas City Fed's annual retreat in Jackson Hole, Wyo.

Chris Williamson, chief economist at the financial information firm Markit, said Friday's report provided "frustratingly little new insight into whether the Fed will start to raise rates."

"A bumper payrolls number would have sealed the case for higher interest rates in many people's minds, while a low number would have dealt a blow to any chances of tightening of policy at the next meeting," Williamson said.

Once the Fed begins raising borrowing rates, higher rates are likely to eventually ripple through the economy. Americans could face higher costs for mortgages and other loans, though the increases could be modest and gradual.

A key question is how a faltering China, slow growth in Europe and a strong dollar will affect the overall U.S. economy. The answer probably won't be clear for months.

Friday's jobs data were gathered before the U.S. stock market fell in late August after signs emerged that China's economic troubles were worsening.

Though unemployment and job growth have reached levels that Fed officials have said reflect a healthy economy, some economists point to signs that the job market still has room to heal.

One example is paychecks: Average hourly wages for all workers rose 8 cents to $25.09 in August, lifting the annual gain to 2.2 percent in August. That's far below the roughly 3.5 percent yearly gain typical of a strong economy. The sluggish wage growth suggests that employers still see many unemployed workers and don't have to offer higher pay to attract qualified applicants.

Nor have the steady job gains of the past three years encouraged more Americans to re-enter or join the job market. The proportion of Americans either working or looking for work remained at a 38-year low in August.

A stumbling global economy and stronger dollar, which makes U.S. exports costlier overseas, could slice a percentage point off U.S. growth through the second half of next year, according to economists at Goldman Sachs.

More so than other months, August's jobs totals typically undershoot the revisions that the government provides later. The government struggles to seasonally adjust the data for the millions of summer jobs that are eliminated throughout the month. August job gains have been revised higher by 79,000 over the past five years, Goldman Sachs estimates.

"All in all, this is a very good report," said Ryan Sweet, a senior economist at Moody's Analytics Inc. in West Chester, Pa., "It doesn't seem, based on other data, that what's happened in financial and international markets is significantly affecting the U.S. economy."

But the report contained hints that international pressures that infected stock and commodity markets may have begun to weigh on employers.

Manufacturing firms have been stumbling in the global head winds. Manufacturers cut 17,000 jobs in August, the most since July 2013. Construction companies added just 3,000, even though homebuilding and other construction have picked up.

More than half of the jobs added last month came from sectors insulated from the global economy: Government, education and health services.

Their share of job creation nearly doubled from 27.1 percent in July, reflecting not just the start of the school year but also weaknesses in other sectors of the economy where foreign customers and capital matter more.

Public education accounted for more than 18 percent of the jobs added in August. School districts and state colleges added 31,900 workers.

Service-sector companies, such as restaurants, retailers, banks and construction companies are expanding at the fastest pace in nearly a decade, according to a survey by the Institute for Supply Management.

And overall, the number of Americans seeking unemployment benefits remains very low by historical standards -- evidence that companies are still confident enough about customer demand to maintain their staff levels.

Information for this article was contributed by Christopher S. Rugaber, Josh Boak and Paul Wiseman of The Associated Press; by Michelle Jamrisko of Bloomberg News; and by Kevin G. Hall of the McClatchy Washington Bureau.

A Section on 09/05/2015

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