Payrolls in the U.S. climbed less than projected in August and gains for the prior two months were revised down, pointing to an expansion that’s struggling to gain momentum.
The addition of 169,000 workers last month trailed the 180,000 median forecast in a Bloomberg survey of 96 economists. Unemployment fell to 7.3 percent, the lowest since December 2008, as workers left the labor force.
Bigger increases in employment are needed to propel the consumer spending that accounts for 70 percent of the world’s largest economy. Treasuries rose as investors bet Federal Reserve policy makers, at their next meeting Sept. 17-18, will temper plans to reduce an $85 billion monthly pace of bond purchases that have bolstered global markets.
“Today’s numbers are soggy, and certainly at odds with other evidence on the economy that shows things are OK,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, whose forecast called for a 170,000 increase in payrolls. “Recent reports show there are pockets of strength in the economy as well as pockets of weakness.”
The benchmark U.S. 10-year yield fell six basis points, or 0.06 percentage point, to 2.93 percent at 4:12 p.m. in New York. The yield earlier touched 3.005 percent, breaching 3 percent for the first time since July 2011. The Standard & Poor’s 500 Index erased gains to close less than 0.1 percent higher at 1,655.17 amid tension between the U.S. and Russia over Syria’s civil war.
Bloomberg survey estimates for payrolls ranged from increases of 79,000 to 220,000 after a previously reported 162,000 gain in July. Revisions to prior reports subtracted a total of 74,000 jobs to payrolls in the previous two months.
The unemployment rate, derived from a Labor Department survey of households rather than employers, was forecast to hold at 7.4 percent, according to the Bloomberg survey median.
The rate was driven lower as the share of working-age people in the labor force declined. The so-called participation rate, decreased to 63.2 percent, the lowest since August 1978, from 63.4 percent.
Gains in earnings and hours worked were a bright spot in today’s report. Average hourly earnings climbed by 0.2 percent to $24.05 in August from the prior month. They increased 2.2 percent over the past 12 months, the most since July 2011. The average work week for all workers rose by six minutes to 34.5 hours.
Private employment, which excludes government agencies, climbed 152,000 after a revised gain of 127,000 in July that was weaker than first reported. Company payrolls were projected to rise by 180,000, the survey showed.
While some companies are awaiting a pickup in sales before adding to staff, Ford Motor Co. (F:US) is among those putting more workers on assembly lines as the auto industry surges.
Dearborn, Michigan-based Ford, the second-largest U.S. automaker, this week reported it will boost fourth-quarter production by 7 percent. The company had in August said an additional shift of 1,400 new workers at a factory in Flat Rock, Michigan, will help increase its Fusion sedan capacity.
Employment at factories increased by 14,000 following a 16,000 decrease in the previous month, today’s data show. Economists had projected a 5,000 rise. Employment at private service-providers increased less in August than the prior month. Government payrolls rose by 17,000.
Some companies contending with limited growth in overseas markets are trimming positions. San Jose, California-based Cisco Systems Inc. (CSCO:US), the biggest maker of networking equipment, on Aug. 14 said it is cutting 4,000 jobs, or 5 percent of its workforce, as weaker sales in Japan, China and Europe weigh on revenue growth.
The road to employment has taken time for people like 22-year-old Madison Li. She will start a job as an information technology consultant in Atlanta later this month after graduating from Emory University with a double major in economics and Chinese language and literature. Li put out 25 applications over the past year, and did about 15 interviews before getting four job offers.
“I think it is still not easy” for new graduates, Li said. “We still have a lot of very qualified graduates who are unable to find jobs because of the economy. It is a little bit better than a year ago or the year before. I think it is getting better.”
Katherine Fisher, who’d been looking for work since March, was hired in July as a leasing consultant at Dallas-based Lincoln Property Company through a listing on an online job board. The 22-year-old shows and markets apartments to prospective tenants and fields questions from current residents.
“I had heard a lot about how hard it would be, but I thought people were just complaining,” said Fisher. “Every day I would wake up and get these rejection emails.”
Fed officials are debating whether the labor market is strong enough to warrant scaling back the pace of bond purchases aimed at boosting growth and putting more Americans back to work. Today’s payrolls report is the last one Fed officials will see before this month’s meeting.
Fed Bank of Chicago President Charles Evans, who has consistently supported record stimulus, today said the Fed shouldn’t taper until inflation and economic growth pick up.
“To start the wind-down, it will be best to have confidence that the incoming data show that economic growth gained traction during the third quarter of this year and that the transitory factors that we think have held down inflation really do turn out to be transitory,” Evans said in a speech in Greenville, South Carolina, before the report was released. He is a voter on policy this year.
The jobs data didn’t derailed economists’ expectations that the Fed will taper this month. The Federal Open Market Committee will reduce Treasury purchases to $35 billion from $45 billion while maintaining mortgage-bond buying at $40 billion, according to the median of 34 responses today in a Bloomberg News survey of economists. That pace was unchanged from an Aug. 9-13 poll, as was a projection that the program will end in June.
Evans, speaking to reporters after the jobs report, said he has an “open mind” on whether the FOMC should reduce bond purchases at its Sept. 17-18 meeting.
Another Fed president, Esther George of Kansas City, who has consistently dissented against additional stimulus, called for tapering to a $70 billion pace at the Fed’s next meeting while cautioning that such reductions may prompt market volatility. George has consistently dissented against additional stimulus.
Central bankers on July 31 affirmed a pledge to continue bond buying until they see signs “the outlook for the labor market has improved substantially.” The Fed has also committed to hold the main interest rate near zero as long as the jobless rate is above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.
The prospect of a reduction in Fed stimulus has sent Treasury yields higher and roiled global markets. The yield on the benchmark 10-year Treasury note has climbed about a percentage point since Chairman Ben S. Bernanke said on May 22 that the central bank could “take a step down in our pace of purchases” in the “next few meetings.” On June 19, Bernanke said policy makers may reduce the pace monthly bond buying this year and halt it altogether by mid-2014.
Fed policy makers were “broadly comfortable” with Bernanke’s plan to start reducing the purchases if the economy improves, minutes of their July meeting showed. A Bloomberg survey of economists conducted Aug. 9-13 showed 65 percent of respondents predicted the policy makers would start tapering at their September meeting.
Bill Gross, manager of the world’s biggest bond mutual fund, said Fed officials are unlikely to alter the timetable for tapering.
“Bernanke and company are committed to a taper,” Gross, co-founder of Pacific Investment Management Co., said today in a radio interview on “Bloomberg Surveillance” with Tom Keene. “It will be taper lite as opposed to a strong tapering.”
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