Jobs report may put interest rate hike in question

By Don Lee

Sept. 2, 2016 11:40 AM PT

Reporting from Washington — Job and pay growth slowed in August, returning to a more modest pace that clouds the prospects for an interest rate hike by the Federal Reserve later this month.

Employers added 151,000 jobs last month, the government said Friday. That is still a healthy number but lower than the 180,000 that analysts were expecting on average and down sharply from revised gains of 271,000 jobs in June and 275,000 in July.

Job gains in those prior two months came after very sluggish hiring in the spring and were not expected to be sustained. Fed and other economists have said about 100,000 to 125,000 new jobs a month are needed to keep pace with the population and labor force growth, and hold the unemployment rate steady.

The nation’s jobless rate in August remained at 4.9% for the third straight month. Forecasters were looking for it to drop to 4.8%.

Fed Chairwoman Janet L. Yellen last week seemed to be preparing markets for the central bank’s first rate increase since December, citing the nation’s “continued solid performance” in the labor market. But some analysts said the Labor Department report was not strong enough to push Fed policymakers to raise the benchmark interest rate at the conclusion of their two-day meeting on Sept. 21.

“I don’t think it tips the balance toward a rate hike,” said Kevin Logan, chief U.S. economist at HSBC Bank in New York.

Most experts now don’t see a modest Fed rate increase until after election day Nov. 8, at its December meeting at the earliest, but others said the report was not so bad as to cause a rethink by Yellen or the Fed.

The latest job growth “is simply not slow enough to derail a rate hike,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

Nor was the jobs report weak enough to help Republican candidate Donald Trump, although that didn’t stop him from issuing a statement shortly after its release and highlighting the shortcomings.

“Over a third [of the August gains] are low-paying service jobs in sectors such as retail and restaurants that won’t support a family, pay for a home or put children through college,” said Trump senior economic advisor David Malpass.

About 44,000, or 29%, of the jobs added last month were in retail and the hotel and restaurant sectors, which pay on average $13 to $15 an hour. Most of the new jobs last month were in higher-wage professional services and financial businesses and other sectors where the pay is more mixed, such as health and education services. Manufacturing and construction industries shed jobs, however.

There was no immediate comment from Trump’s opponent, Hillary Clinton, but Donna Brazile, the Democratic National Committee’s interim chair, said: “Today’s strong jobs report is further proof that Democratic leadership in the White House is the right choice to keep our economy growing.”

The economy is now in its eighth year of growth since the Great Recession, but it has been slow by historical standards. And one clear disappointment has been on the pay front. August was another letdown.

Average hourly earnings of all private-sector workers rose just three cents last month from July, to $25.73. That was up 2.4 % from a year earlier, but the weakest showing since March and down from an annual pace of 2.7% in July.

Economists have been waiting for a bigger, sturdier pickup in earnings as the job market has tightened, but the smaller-than-expected gains suggest there are many more jobless workers than the 7.85 million people on the official unemployment rolls. A long-running trend of low productivity growth and more recently, weakening corporate profits are not helping, either.

Labor Secretary Thomas Perez acknowledged that the slow wage gains have been “a big part of the angst that people feel.” Saying that “we need to put more money into people’s pockets,” he argued for an increase in the federal minimum wage, which has been stuck at $7.25 since July 2009, and substantial increases in infrastructure spending that could support higher-paying jobs.

Including the August numbers, job growth this year has slowed to an average of 181,500 a month, from 229,000 last year and 251,000 in 2014. But in an interview Friday, Perez said that was to be expected after more than six years of solid job growth in which the private sector has added some 15 million jobs.

“This economy continues to be remarkably resilient,” he said.

Still, U.S. economic growth has been particularly lackluster in the prior three quarters, with gross domestic product expanding at an annual increase of around 1%. And with the economy nearing so-called full employment -- which experts regard as an unemployment rate of 4.5% to 5% -- job growth was bound to decelerate after several years of solid gains.

GDP growth in the current third quarter is expected to show a big pickup, to around 3% annualized, thanks mostly to hearty consumer spending, the biggest driver of the American economy. Low gas prices have helped.

Nationally, the average retail price for regular gas was $2.24 a gallon on Monday, the lowest price a week before Labor Day since 2004, according to the U.S. Energy Information Administration.

Nonetheless, growth has been restrained by soft business investment and declining exports, reflecting weak global trade, a strong dollar and a sluggish energy industry. That has hurt employment in manufacturing and supporting sectors such as the temporary-help sector.

“The resilience of the U.S. labor market is found in consumer-driven industries such as retail trade, financial services and healthcare, all of which have expanded steadily despite the tightening labor market,” said Sophia Koropeckyj, a labor economist at Moody’s Analytics.

In a research note Friday, she said Moody’s now expects job gains to average about 180,000 monthly over the next year, with hourly pay growth rising above 3% by the middle of next year.

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UPDATES:

11:40 a.m.: This article was updated with more reaction and background.

6:25 a.m.: This article has been updated with staff reporting.

This article was originally published at 5:30 a.m.