US Employment Growth Slows To Dent Rate Hike Expectations

The US economy added fewer jobs than was expected last month, dampening the prospect of a rise in interest rates this month and sparking a surge in stock market values.

Official statistics for August showed 151,000 net new jobs were created - with the unemployment rate remaining at 4.9%.

Both measures fell short of market expectations and followed comments a week ago by the chair of the US central bank that the case for raising rates had strengthened in recent months.

Employment data has been a crucial factor for Janet Yellen and her rate-setting committee at the Federal Reserve in determining the possible timing of a rate hike - the second since last December in a move that signalled the end of the financial crisis.

The members are due to make their next decision on rates on 21 September.

The committee has previously expressed a desire to wait - given stubbornly low inflation and economic growth, both at home and abroad.

The Bank of England, in the wake of the Brexit vote, and other major central banks are still taking action in a bid to prop up growth.

Another factor that will concern the Fed is sluggish wage growth - which slowed to a 2.4% annual rate from 2.6% in July.

Chris Williamson, chief business economist at IHS Markit (Stuttgart: A1139A - news) , said: "News (Other OTC: NWSAL - news) the US economy added jobs at a slower than expected rate in August, and that wage growth slowed, reduced the odds of a Fed rate hike in September.

"The data-dependent Fed will most likely see the payroll numbers as taking pressure off any immediate need to hike interest rates, significantly reducing the scope for further policy action in September.

"However, with survey data suggesting some of the recent slowdown in hiring and business activity is due to uncertainty ahead of the presidential election, a rate rise later in the year, most likely December, remains on the table providing the economic data flow picks up again in the fourth quarter."

The jobs data bolstered market expectations of a possible rate rate in December - with the dollar losing half a cent against the pound to hit $1.33 and the FTSE 100 closing 2.2% higher at 6894.