WASHINGTON (AP) — 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 Labor Department said Friday that the unemployment rate fell to 5.1 percent from 5.3 percent, the lowest since April 2008.
Hiring in August was the weakest in five months, but the government revised up June and July job growth by a combined 44,000. From June through August, the economy generated a solid 221,000 jobs a month, up from an average of 189,000 in March through May.
Steady hiring could encourage the Fed to raise rates for the first time in a decade. Still, stock market turbulence, a persistently low inflation rate and a sharp slowdown in China could complicate its decision.
Yet after three years of solid job growth that has put nearly 8 million Americans back to work, Fed officials are probably satisfied with the job market’s progress. 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.
Friday’s jobs data was gathered before the U.S. stock market plunged in late August, after signs emerged that China’s troubles were worsening.
“Unfortunately, this report settles little, we think leaving the next two weeks essentially as unsettled as they were prior to the report’s release,” Dan Greenhaus, chief market strategist at institutional brokerage BTIG LLC.
A stumbling global economy and stronger dollar, which makes U.S. exports costlier overseas, could slice a percentage point off U.S. growth through the second half of next year, according to economists at Goldman Sachs.
August’s jobs totals typically come in low and are revised higher. The government has trouble seasonally adjusting the data for the millions of summer jobs that are eliminated throughout the month. August job gains have been revised higher by 79,000 over the past five years, Goldman Sachs estimates.
Smaller companies and services firms, which are largely insulated from global trends, are still doing well. Service sector companies, such as restaurants, retailers, banks and construction companies are expanding at the fastest pace in nearly a decade, according to a survey by the Institute for Supply Management.
Yet manufacturing firms have been struggling amid the global headwinds. Manufacturers cut 17,000 jobs in August, the most since July 2013. Construction firms added just 3,000, even though home building and other construction has picked up.
The number of Americans seeking unemployment benefits remains very low by historical standards — evidence that companies are still confident enough about customer demand to maintain their staff levels.
There are other signs that the U.S. job market remains solid. Americans overall have a brighter outlook: According to the Conference Board’s consumer confidence survey, nearly 22 percent of Americans said jobs were plentiful in August. That matched the proportion who said jobs were hard to get — the first time since early 2008 that the two figures have been equal.
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