U.S. employers did just enough hiring in August to keep unemployment in check and maintain steady—though unspectacular—wage growth. But cooling job growth from recent months reinforced market expectations that the Federal Reserve will push off a rate increase until December at the earliest.
The monthly gain of 151,000 jobs was neither strong enough nor weak enough to settle the central bank's long-running dilemma about whether the labor market can easily withstand another interest-rate increase. The unemployment rate, calculated from a separate survey of American households, was unchanged from the prior month at 4.9%, the Labor Department said Friday.
The August job gain marked a slowdown from the more than 270,000 jobs added in each of the prior two months, but many policy makers have long expected moderating growth. They believe the economy is nearing full employment and that employers need to add fewer jobs to absorb new entrants into the labor pool.
The latest data is the last major employment measure before Fed officials meet Sept. 20-21. The figures could spark a vigorous discussion between policy makers who see the economy as healthy enough to absorb a rate increase and those concerned about low inflation, middling economic growth and uncertainty from the presidential election and global turmoil.
"At this point in the business cycle, adding 100,000 jobs a month is not bad at all," said Northern Trust economist Carl Tannenbaum, a former Fed staffer. But the August increase is "not enough to add sufficient urgency to the monetary policy discussion for an interest-rate increase in three weeks' time."
By several measures, the labor market is already near the Fed's stated goals. The most closely watched measure of unemployment is within the range officials consider the long-term average. Federal Reserve Bank of Cleveland President Loretta Mester said Thursday the economy needed to add only between 75,000 and 150,000 jobs "to keep the unemployment rate constant." Employers have added jobs at a monthly pace of 182,000 so far this year.
Many economists noted Friday that the August jobs figure in recent years has often come in below forecasts before being revised up in subsequent months. Beyond that, the stock market is already at record levels and economists forecast economic growth to accelerate in the second half of the year, offsetting the dismal 1% rate over the past three quarters.
Payrolls are growing at "double the rate needed to keep pace with growth in the working-age population," Federal Reserve Bank of Richmond President Jeffrey Lacker said Friday afternoon. "Unless employment growth slows significantly in the months ahead, it will continue to push our benchmark interest rates up."
Other officials, including governors Daniel Tarullo and Lael Brainard, have said they want to see firmer inflation before acting to raise rates for the first time since December.
Key to the rate debate inside the Fed will be an assessment of how much slack remains in the labor market.
Average hourly earnings for private-sector workers rose 0.1% last month and 2.4% from a year earlier in August—a slowdown from July's 2.7% annual gain, which was the best in seven years. The slower growth in part reflects strong August hiring in low-wage fields.
Last month's pace of wage gains won't put much upward pressure on inflation, which has undershot the Fed's 2% annual target for more than four years. And the unemployment rate, labor-force participation rate and broader measures of underemployment have all held nearly steady this year.
"You want to see the unemployment rate falling because that means inflation is around the corner," said HSBC economist Kevin Logan. "We haven't even got to the corner yet." He doesn't expect the Fed to lift rates until next year.
Ahead of Friday's report, several Fed officials appeared ready to act. Chairwoman Janet Yellen said last week the case for raising rates "has strengthened in recent months." And Boston Fed President Eric Rosengren said Wednesday that keeping rates extremely low, as they are now, risks creating "greater imbalances."
If the Fed's leaders intend to lift rates this month, they have a little more than a week to prepare the public ahead of a self-imposed quiet period around meetings.
Investors, who have been eager for signals on the rate outlook, seemed to struggle Friday to interpret the Fed implications of the report. Before the jobs report, the futures market showed a 27% chance of an increase this month. Shortly after the report was released, those odds fell to 12%, but then rose during the day, settling at 24% at close. Similarly, the Dow Jones Industrial Average jumped in the opening minutes of trade Friday, only to give back most of those gains by early afternoon before settling modestly higher on the day, up 0.4%.
Despite occasional stumbles, the economy since late 2010 has added jobs consistently. Now, a tighter labor market is increasingly weighing on some companies trying to expand.
Rightpoint Consulting LLC added two employees to the technology and marketing firm's Atlanta office last month. One position, an entry-level job, was filled quickly among several qualified candidates, said John Schneider, vice president of technology.
The other, a higher-level programmer, took 18 months to fill. Rightpoint raised its salary target and worked with recruiters. "That was a hard one to fill," he said. "We needed someone who was not just great with the technology, but also was a good communicator."
Some job seekers have shifted their focus to find work. Samridhi Shoor, 22 years old, sought a position at a large industrial firm where she had an internship after graduating from Indiana University this spring. But that firm didn't hire her because it was laying off existing staff.
So she turned her attention to financial-services firms, and recruiting intensified. She nabbed several offers from accounting firms, with competitive salaries and student-loan repayment. She started last month at Ernst & Young in New York as a risk adviser.
"The job market is definitely growing, but I think it slowed a little bit," she said. "The manufacturing sector has had a downfall, but accounting firms are picking up people in bulk."
The services sector accounted for nearly all employment gains last month. Employment at restaurants grew by a seasonally adjusted 34,000; professional and business services jobs grew by 22,000; and social-assistance jobs grew by 21,700. In contrast, the manufacturing sector shed 14,000 jobs and 6,000 construction jobs were cut.
—Harriet Torry
and David Harrison contributed to this article.
Write to Eric Morath at eric.morath@wsj.com and Anna Louie Sussman at anna.sussman@wsj.com
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