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Payroll growth slumps in August; unemployment rate down to 6.1%

Job growth cooled in August, with nonfarm payrolls adding just 142,000 even as the unemployment rate fell to 6.1 percent, according to the Labor Department. The fall in the headline rate came as labor-force participation fell, declining to 62.8 percent, or 64,000 workers, tying the 2014 bottom and remaining at the lowest level since 1978.

Economists expected payroll growth of 225,000 in August following July's upwardly revised 212,000. The unemployment rate was forecast to drop to 6.1 percent from 6.2 percent.

August's number are a notoriously volatile set, with 2013's initially reported 169,000 ultimately revised up to 238,000. In 2011, the Bureau of Labor Statistics initially said net job creation was zero, only to push that figure up to 104,000 by the time all was said and done.

Read MoreDon't believe weak August jobs data: Economists

Markets actually liked Friday's report, pushing stock futures higher as traders likely gained confidence that monetary policy would remain loose for an extended period of time. Bond yields declined in lockstep, with the 10-year Treasury note yield falling to 2.42 percent.

"The report is a remarkable disappointment as a headline number, especially after receiving such promising macro data over the summer," said Todd M. Schoenberger, president of J. Streicher Asset Management. "Oddly enough, though, this flat figure may still bode well for investors' portfolios because it should force the Fed to take a breather with its 'increase-in-interest-rate' chant, which will push equity valuations higher. The data should help continue the markets' upward trajectory today, and throughout the rest of the quarter."

A worker polishes a 2015 Ford Mustang on Aug. 28, 2014 in Flat Rock, Mich.
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A worker polishes a 2015 Ford Mustang on Aug. 28, 2014 in Flat Rock, Mich.

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"With respect to the market, the rally in the S&P futures off a big miss still reflects the 'drug junkie' attitude of anything that backs (off) the Fed is somehow good," said Peter Bockvar, chief market analyst at The Lindsey Group.

Read MoreGartman warns on lack of conviction in markets

The report breaks a string of months with payrolls above 200,000.

"The number was a surprise and a disappointment, but we do not believe that it indicates a slowdown in the U.S. economy," said Joseph Lake, U.S. analyst for The Economist Intelligence Unit. "Indeed, there is a reasonable chance that it will be revised upwards in coming months."

An alternative measure of unemployment that counts underemployed workers and those who have stopped looking also declined, falling from 12.2 percent to 12 percent.

Professional and business services added the most positions, with 47,000, while health care gained 34,000, and bar and restaurant positions moved up by 22,000.

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Overall wages gained 6 cents to $24.53 an hour, representing an annualized increase of 2.1 percent. The average work week was unchanged at 34.5 hours.

Full-time positions grew by 127,000, while part-time plunged by 327,000.

Taken as a whole, the numbers are in keeping with a modest pace of economic growth likely to keep the Federal Reserve loose in how it approaches monetary policy. The U.S. central bank is nearly finished with the third round of its monthly bond buying program but has pledged to keep short-term interest rates near zero until the jobs picture improves and inflation accelerates.

Read MoreFed's Kocherlakota: US rates are not low enough

Prior months' job growth saw downward revisions, with June cut to 267,000 from 298,000.

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