In August, U.S. employment growth slowed more than anticipated following two consecutive months of healthy gains and wage gains, which could potentially rule out an interest rate hike from the Fed this month. Nonfarm payrolls increased by 151,000 jobs in August following an upwardly revised 275,000 increase in July, with hiring in manufacturing and construction sectors dropping, the Labor Department reported on Friday. The unemployment rate remained unchanged at 4.9% as more people entered the labor market.
The report comes after news on Thursday that the manufacturing sector pulled back in August, which had already cast doubts on an interest rate increase at the Fed’s Sept. 20-21 policy meeting.
“This mixed jobs report puts the Fed in a tricky situation. It’s not all around strong enough to assure a September interest rate hike. But it’s solid enough to engender a heated policy discussion,” stated Mohamed el-Erian, chief economic adviser at Allianz.
A poll from Economists had forecast payrolls increasing 180,000 last month and the unemployment rate dropping one-tenth of a percentage point to 4.8 percent August’s jobs gains, however, could still be sufficient to push the Fed to raise interest rates in December. The advance in payrolls reinforces views that the economy has regained speed after almost halting in the first half of the year.
Rate hike probabilities for both the September and December meetings gained after comments last Friday by Fed Chair Janet Yellen that the case for raising rates had strengthened in recent months. Following the report, financial markets were waging in a 21 percent possibility of a rate hike this month and a 58.6 percent probability in December, according to the CME Fedwatch tool.
The Fed lifted its benchmark overnight interest rate at the end of last year for the first time in nearly ten years, but has held it steady since among fears over low inflation. The dollar was marginally higher against a basket of currencies. Prices for U.S. government bonds dropped, while stocks on Wall Street increased.