American employers hired fewer workers than forecast in August and the jobless rate dropped because people left the workforce, bolstering those on the Federal Reserve who want to be more deliberate in removing monetary stimulus.
The 142,000 advance in payrolls was smallest this year and lower than the most pessimistic estimate in a Bloomberg survey of economists after a revised 212,000 gain in July, figures from the Labor Department showed in Washington. The median projection called for a 230,000 increase. The unemployment rate fell to 6.1 percent last month from 6.2 percent, reflecting a drop in joblessness among teenagers.
Employers who boosted headcounts in the first half of the year may be more restrained in their hiring as they await even faster economic growth. Fed Chair Janet Yellen and her colleagues will use the report to help discern the extent of slack in the labor market as they pare back record monetary stimulus, while keeping interest rates low at the same time.
“The shortfall in payrolls is disappointing, but it sure looks like a fluke, not a trend,” said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. “It gives Yellen a little wiggle room to do what she wants to do, and that is end the tapering and not start raising rates anytime soon.”
Stocks declined as investors weighed the report for clues on the economy’s strength and the timing of any Fed interest-rate increase. The Standard & Poor’s 500 Index dropped 0.2 percent to 1,993.49 at 10:36 a.m. in New York.
Estimates in the Bloomberg survey of 91 economists ranged from increases of 190,000 to 310,000 after a previously reported 209,000 July gain. The August advance interrupted six straight months of payroll gains exceeding 200,000. Revisions to prior reports subtracted a total of 28,000 jobs from overall payrolls in the previous two months.
The smaller-than-projected August increase reflected a decline in retail employment and little change at the nation’s manufacturers.
The participation rate, which indicates the share of working-age people in the labor force, decreased 0.1 percentage point to 62.8 percent, matching the lowest since 1978.
There were patches of strength in the report. The number of Americans employed part-time because they couldn’t find full-time work dropped 234,000 in August.
The underemployment rate — which includes part-time workers who’d prefer a full-time position and people who want to work but have given up looking — dropped to 12 percent, the lowest since October 2008, from 12.2 percent.
The number of long-term unemployed, those out of work for 27 weeks or more, totaled 2.96 million, the fewest since 2.7 million in January 2009.
Private hiring increased 134,000 in August, also the smallest gain this year, after an advance of 213,000 the month before. Employment at private service providers increased 112,000, while payrolls were unchanged at factories. Construction companies added 20,000 workers and retail employment dropped by 8,400 in August.
The average work week for all employees held at 34.5 hours.
Economists surveyed by Bloomberg from Aug. 8 to Aug. 13 forecast the U.S. economy will add 220,000 jobs a month on average this year. That compares with 2013’s average of 194,250 and 186,330 the previous year.
While payrolls play a role in guiding Fed monetary policy, central bankers look at other figures to determine the strength of the labor market. Worker pay, which influences the outlook for spending, is an important in determining if the job market is healed and can withstand tighter monetary policy.
The employment report also showed average hourly earnings rose 0.2 percent to $24.53 in August from $24.47 the prior month. They were up 2.1 percent over the past 12 months.
“There has been little evidence of any broad-based acceleration in either wages or compensation,” Fed Chair Janet Yellen said at an Aug. 22 speech at the Kansas City Fed’s economic conference in Jackson Hole, Wyoming. Limited income growth has held back consumer spending, which accounts for 70 percent of the economy.
Household purchases unexpectedly decreased 0.1 percent in July, the first drop in six months, after rising 0.4 percent the prior month, Commerce Department figures showed in Washington. Incomes rose at the slowest pace of the year, and savings climbed to the highest level since the end of 2012.
There are pockets of strength. The annualized sales pace of auto sales adjusted for seasonal trends rose to 17.5 million in August, the fastest since January 2006. Chrysler Group LLC reported its best August for U.S. vehicle deliveries in 12 years, while carmakers including Ford Motor Co. posted results that surpassed analysts’ projections.
“Good macroeconomic fundamentals, including the robust manufacturing activity, improving labor market conditions and continued supportive monetary policy, have contributed to this improving trend,” Emily Kolinski Morris, senior U.S. economist at Dearborn, Michigan-based Ford, said on a Sept. 3 conference call. “The recent economic indicators remain very favorable and consistent with our expectations for growth.”
The gains in auto sales have been keeping assembly lines busy manufacturers. The Institute for Supply Management’s factory index climbed to the highest level since March 2011, led by a surge in orders for plastics and metals.
The economy expanded at a 4.2 percent annualized pace in the second quarter following a first-quarter contraction of 2.1 percent, according to Commerce Department data. Corporate profits climbed by the most in almost four years.
The Fed said this week in its Beige Book business survey that most regions reported expansion of auto sales, with record highs seen in the Philadelphia and Dallas areas. While the U.S. economy expanded in July and August, no region experienced a “distinct shift” in the pace of growth, and trends in jobs and wages were relatively unchanged.
While the “labor market has yet to fully recover,” Yellen said in her Aug. 22 speech, the debate at the Fed is shifting toward when “we should begin dialing back our extraordinary accommodation.”
Policy makers in July tapered monthly bond buying to $25 billion in their sixth consecutive $10 billion cut, staying on pace to end the purchase program in October. The Fed’s next meeting concludes Sept. 17.
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