WASHINGTON—The U.S. unemployment rate fell to a seven-year low in August as employers added a modest 173,000 jobs, a key piece of evidence for the Federal Reserve in deciding whether to raise interest rates from record lows later this month.
The jobless rate fell to 5.1 percent—a level the Fed says is consistent with a normal economy—from 5.3 percent in July, the government said Friday. It’s the lowest unemployment rate since April 2008.
Though hiring in August was the slowest in five months, the government revised up its estimates of job growth for June and July by a combined 44,000. From June through August, a robust 221,000 jobs a month were added, up from a 189,000 average from March through May. Three years of solid hiring have put 8 million Americans to work.
Friday’s report appeared neither so strong nor so weak as to tilt the Fed decisively toward either a rate hike or against one. But as the final report on the job market before the Fed meets Sept. 16-17, it’s one of the most significant pieces of evidence it will weigh.
Investors appeared disappointed by the report, perhaps because it could encourage Fed officials to lift rates. The Dow Jones industrial average fell 260 points in late morning trading, while broader stock indexes also fell. The yield on the benchmark 10-year Treasury note edged down to 2.14 percent from 2.16 percent late Thursday.
Many economists think the Fed will decide in two weeks to raise its benchmark rate for the first time in nine years. At the same time, stock market turbulence, a persistently low inflation rate and a sharp slowdown in China have complicated the decision.
Chris Williamson, chief economist at the financial information firm Markit, said Friday’s report provided “frustratingly little new insight into whether the Fed will start to raise rates.”
“A bumper payrolls number would have sealed the case for higher interest rates in many people’s minds, while a low number would have dealt a blow to any chances of tightening of policy at the next meeting,” Williamson said.
Once the Fed begins raising borrowing rates, higher rates are likely to eventually ripple through the economy. Americans could face higher costs for mortgages and other loans, though the increases could be modest and gradual.
A key question is how a faltering China, slow growth in Europe and a strong dollar will affect the overall U.S. economy. The answer probably won’t be clear for months.
