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US job growth slows, unemployment rate falls

Washington - US payrolls rose less than expected in August, but a drop in the unemployment rate to a near seven-and-a-half-year low of 5.1% and an acceleration in wages kept alive prospects of a Federal Reserve interest rate hike later this month.

Nonfarm payrolls increased 173 000 last month as the manufacturing sector lost the most jobs since July 2013, the Labour Department said on Friday. It marked a slowdown from July's upwardly revised gain of 245 000 and was the smallest rise in employment in five months.

The report, however, may have been tarnished by a statistical fluke that in recent years has frequently led to sharp upward revisions to payroll figures for August after initial weak readings.

Indicating that the slowdown in job growth was likely not reflective of the economy's true health, payrolls data for June and July were revised to show 44 000 more jobs created than previously reported.

In addition, average hourly earnings increased 8 cents, the biggest rise since January, and the workweek rose to 34.6 hours.

"The payrolls data is certainly good enough to allow for a Fed rate hike in September, the big question is still whether financial market volatility will scupper the plans," said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

The dollar trimmed losses against a basket of currencies after the data, while prices for US Treasury debt pared gains.

While the report may not change views that the US economy remains vibrant amid volatile global financial markets and slowing Chinese growth, it could further complicate the Fed's decision at a policy meeting on September 16 to September 17.

In the wake of a recent global equities sell-off, financial markets significantly scaled back bets on a September rate hike over the past month. But Fed Vice chairperson Stanley Fischer told CNBC last week it was too early to decide whether the stock market rout had made an increase less compelling.

A Reuters survey of economists had forecast nonfarm payrolls increasing by 220 000 last month, but economists warned that the model the government uses to smooth the data for seasonal fluctuations might not adequately account for the start of a new school year.

They said the data could be further muddied because of a typically low response rate from employers to the government's August payrolls survey. A Labour Department official confirmed that the first payrolls estimate in August typically was revised higher.

Still, the improving labour market adds to a string of upbeat data, including figures on automobile sales and housing, that has suggested the economy was moving ahead with strong momentum early in the third quarter after growing at a robust 3.7% annual rate in the April-through-June period.

The jobless rate's two-tenths of a percentage point drop took it to its lowest level since April 2008 and brought it into the range that most Fed officials think is consistent with a low but steady rate of inflation.

A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.3%, the lowest since June 2008, from 10.4% in July.

In August, construction payrolls rose 3 000 on top of the 7 000 jobs added in July. Mining and logging employment fell by 10 000 jobs last month. Manufacturing payrolls fell 17 000, despite robust demand for autos.

The increase in hourly earnings left them 2.2% above their year-ago level, still well below the 3.5% growth rate economists consider healthy. Some analysts think earnings are being held back by falling wages in oil field services.

But a tightening labour market and decisions by several state and local governments to raise the minimum wage should eventually translate into faster earnings growth and give the Fed confidence that inflation, which collapsed with oil prices, will move closer to its 2% target.

A number of retailers, including Walmart, Target and TJX Cos, have increased pay for hourly workers.

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