Hiring dropped in August as economy added 142,000 jobs; unemployment rate at 6.1%

America's monthly jobs report can be hard to understand. Here’s what you need to know about non-farm payroll employment and the unemployment rate — with gummy bears to help explain. (Kate M. Tobey, Gillian Brockell and Jonathan Elker/The Washington Post)

Hiring slowed significantly in the United States in August, as employers added only 142,000 jobs, a disappointing setback for an economic expansion that has been gaining steam for most of this year.

The Labor Department on Friday also reported that the unemployment rate declined in August to 6.1 percent from 6.2 percent, partly explained by additional people dropping out of the workforce.

The data came in far below the 200,000-plus jobs that many economists had expected — and that had been the norm over the past six months. The slower pace of hiring may be evidence that the economy is not quite as strong as many people have thought.

Economists, however, were quick to caution that the weak jobs number is an outlier at a time of several other stronger measures of economic activity, including auto sales — which soared in August — and exports. Markets were little-changed on the news and ended the day in positive territory.

“I don’t believe the numbers,” said Tim Hopper, chief economist at TIAA-CREF. “Not only are they very weak, they just don’t match anything else that’s in the market right now.”

Still, the new data are sure to be an unwelcome piece of news for the White House and national Democrats, who have been touting the economy’s rebound as a central justification for keeping the Senate in Democratic hands in November’s mid-term elections.

“The White House can continue to hype the recovery all it wants. The fact is that today’s disappointing jobs report represents a step backward,” said Rep. Kevin Brady (R-Tex.), chairman of the Joint Economic Committee, in a statement.

For its part, the White House highlighted the fact that the economy has now added 10 million private-sector jobs since the recovery in the labor market began in 2010.

“This figure is a marker of the progress that has been made, but also a reminder that more must still be done to create jobs, especially for the long-term unemployed, and grow the middle class,” said Jason Furman, chairman of the Council of Economic Advisers, in a statement.

If the report is a hint of a sustained slowdown in hiring, the jobs number could also prompt a new calculus at the Federal Reserve, which is winding down its extraordinary stimulus campaign and beginning to consider when to raise interest rates. Many investors expect that to begin to occur in the middle of next year, though some members of the Fed have been loudly calling for earlier rate hikes, given the strength of the recovery.

Several more months of subpar job creation, however, could slow plans to raise rates, especially if wage growth remains relatively subdued, as it did in Friday’s report. Average hourly earnings increased 2.1 percent over the past year, continuing the pattern of recent years and barely faster than the rising price of goods and services.

“Wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent. It’s clear that Fed policymakers should abandon notions of slowing the economy,” Elise Gould, an economist at the liberal Economic Policy Institute, wrote in a blog post.

The surprising slowdown in jobs growth last month gives the Fed more reason to wait before raising interest rates. (Reuters)

She added, “Employers just don’t have to offer big wage increases to get and keep the workers they need, when hiring rates and net job creation remain far slower than what’s needed for a healthy labor market.”

Still, before changing any plans, the Fed is likely to wait for more data over the coming months. In a recent speech, Fed Chair Janet L. Yellen acknowledged that the jobs market is likely worse off than the unemployment rate suggests, but she also raised questions about the degree to which wage increases are an indicator of the underlying strength of the economy.

Even with Friday’s disappointing report, the economy is still adding an average of 215,000 jobs a month this year, a trend that sets up this year’s job creation to be the best since 1999.

“This will be viewed as an anomaly,” Hopper said.

The Department of Labor on Friday also reported that the number of long-term unemployed — those jobless for more than six months — declined by 192,000 in August to 3 million.

The agency also revised hiring data for June and July, reducing the number of jobs created by 28,000.

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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