By Shobhana Chandra
and Victoria Stilwell
WASHINGTON: Payrolls climbed less than projected in August and gains in the prior two months were revised down, indicating companies are being deliberate in their hiring as they wait for a pickup in demand. The unemployment rate unexpectedly fell as more people left the labor force.
The addition of 169,000 workers last month followed a revised 104,000 rise in July that was smaller than initially estimated, Labor Department figures showed in a Friday report.
The median forecast of 96 economists surveyed by Bloomberg called for an August increase of 180,000. Unemployment dropped to 7.3 percent, the lowest since December 2008.
Treasury bonds rose as investors curbed bets that the Federal Reserve will start to reduce its $85 billion monthly pace of bond purchases at its Sept. 17-18 meeting.
“The Fed is certainly going to want to get more information before they make this move, particularly given how violent the financial market reaction has been to tapering,” said Julia Coronado, New York-based chief economist for North America at BNP Paribas and a former Fed economist. “You’re not going to play Russian roulette with the U.S. economy and risk another backlash in interest rates.”
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 declined to 63.2 percent, the lowest since August 1978, from 63.4 percent.
Revisions to prior reports subtracted a total of 74,000 jobs to payrolls in the previous two months.
Gains in earnings and hours worked were a bright spot. Average hourly earnings climbed by 0.2 percent to $24.05 in August from the prior month, and increased 2.2 percent over the past 12 months. The average workweek for all workers rose by six minutes to 34.5 hours.
Private employment, which excludes government agencies, rose 152,000 after a revised gain of 127,000 in July that was weaker than first reported. Private payrolls were projected to rise by 180,000, the survey showed.
Employment at factories increased by 14,000 following a 16,000 decrease in the previous month, the Friday report showed. 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 their workforce. San Jose, Calif.-based Cisco Systems Inc., 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.
Fed officials are debating when the labor market will be strong enough to warrant scaling back the pace of bond purchases aimed at boosting growth and putting more Americans back to work.
Fed Bank of Chicago President Charles Evans, who has consistently supported record stimulus, said Friday the Fed shouldn’t taper its bond buying 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, S.C.
Central bankers had affirmed a pledge on July 31 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.
“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, who had forecast payrolls would rise 170,000. “It means tapering is not a done deal. Fed policy makers may want to punt until the next 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,” said Gross, co-founder of Pacific Investment Management Co. “It will be taper-light as opposed to a strong tapering.”
The Institute for Supply Management’s factory index on Thursday showed manufacturing expanded in August at the fastest pace since June 2011. The group’s gauge of service industries, which cover almost 90 percent of the economy, posted the highest reading since December 2005, according to data compiled by Bloomberg.
Cars and light trucks sold in August at the fastest annualized rate since 2007, according to Ward’s Automotive Group. Sales at General Motors, Ford, Toyota and Honda all exceeded analysts’ estimates.
Businesses adding workers include AT&T Inc., looking to fill “hundreds” of positions in the San Francisco Bay area, the company said Aug. 29.