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US job growth slows sharply, Fed seen keeping rates low

WASHINGTON — Job growth in the United States plunged unexpectedly last month and more Americans gave up the hunt for work, giving a cautious Federal Reserve more reasons to wait longer before raising interest rates.

WASHINGTON — Job growth in the United States plunged unexpectedly last month and more Americans gave up the hunt for work, giving a cautious Federal Reserve more reasons to wait longer before raising interest rates.

Non-farm payrolls rose 142,000 last month, down from a revised 212,000 gain in July, the US Labor Department said yesterday. It was the smallest increase in eight months and marked the first drop below the key 200,000 threshold since January. Adding pressure to the weakening outlook, the June and July payroll data were revised to show 28,000 fewer jobs created than previously reported.

The unemployment rate fell one-tenth of a percentage point to 6.1 per cent, but this was because more people dropped out of the labour force. Economists had expected payrolls to increase 225,000 last month and the jobless rate to fall to 6.1 per cent.

Despite weak job creation in the world’s largest economy, US markets held up well amid expectations that borrowing costs will stay low.

About ten minutes after the opening bell in New York, the Dow Jones Industrial Average was down 0.2 per cent at 17,036.16. The US dollar fell 0.2 per cent against the euro to US$1.2966. Meanwhile, the yield on the benchmark 10-year Treasury fell 0.034 per cent to 2.414 per cent.

Phoenix Financial Services chief market analyst Wayne Kaufman said: “The 10-year yield is dropping, which I think is a sign of relief on the part of investors who were worried about the Fed raising rates sooner than expected. Now there’s no risk of change on that front.”

“This is the first really negative report in a while, and in spite of it, the economy continues to improve. I think this is an excellent environment for equities,” he added.

The surprise slowdown in job growth is at odds with labour market indicators such as first-time applications for unemployment benefits, which are hovering near pre-recession levels.

In addition, manufacturing and service sector surveys showed strong growth last month and household perceptions of the labour market brightened significantly, which economists said were consistent with tightening conditions.

The job report comes ahead of a Fed policy meeting on Sept 16 to 17. The central bank has kept benchmark lending rates near zero since December 2008 and the latest data supports the Fed’s continued cautious approach to monetary policy.

Fed Chair Janet Yellen is concerned about sluggish wage growth, the still-elevated numbers of Americans working part-time even though they want full-time employment, and those still suffering from a long spell of joblessness. The central bank has pointed to these metrics as evidence of “significant underutilisation” of labour market resources that merits a stimulative monetary policy.

The labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, fell to 62.8 per cent last month, matching the lowest since 1978, from 62.9 per cent in July.

Average hourly earnings rose by six cents in August to US$24.53 (S$30.73) to take the gain over the year to only 2.1 per cent. Stagnant wage growth has been a concern for Fed officials who view it as a symptom of significant labour-market slack. Compensation per hour has climbed by just 0.5 per cent after inflation since 2009, marking the weakest wage growth since World War II.

The length of the average work week in August was unchanged at 34.5 hours for a sixth month in a row. AGENCIES

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