US employers created 144,000 jobs last month, slightly weaker than consensus forecasts, but strong enough to help bolster confidence that the economy is recovering from a lull in growth.
The rise in employment was significantly better than the lacklustre pace of job creation rates seen in June and July, providing some relief to the Bush presidential campaign.
The July reading was yesterday revised up from 32,000 to 73,000 and employment growth in June was revised up to 96,000.
The report supported the Federal Reserve's case that the economy is picking up after a period of weakness, caused in part by high energy prices.
Futures contracts point to firm expectations of a quarter-point increase, to 1.75 per cent, when the Fed meets later this month. The yield on the two-year treasury note rose 12 basis points to 2.58 per cent after yesterday's data.
However, it is a concern for Fed policymakers that employers have been nervous about hiring new workers following the recent slowdown in demand.
As the stimulus from mortgage refinancing and tax cuts fades, healthy employment and income growth is needed to support consumer spending.
In the three months to May, the economy created an average of almost 300,000 jobs while in the three months to August the average monthly gain was only just above 100,000.
Economists estimate that increases of 150,000 per month are needed to keep pace with population growth - with stronger growth required to eat into economic slack and boost income growth.
The unemployment rate fell from 5.5 to 5.4 per cent, but this was largely a result of people dropping out of the labour market, as the participation rate dropped from 66.2 to 66 per cent.
Hours worked rose by 0.2 per cent last month and were revised upwards in July.
Average earnings rose by 0.3 per cent in August and there were upward revisions in June and July.
However, earnings have failed to keep pace with inflation: the 2.3 per cent rise in earnings over the past year compares with a headline inflation rate of 3 per cent in July.
Fed officials have given no indication that they will be deflected from raising rates at a "measured" pace by the recent slowdown in growth. Mr Alan Greenspan, Fed chairman, will give testimony to Congress on the economic outlook on Wednesday.
Survey evidence suggests activity has slowed but remains robust. The Institute for Supply Management reported yesterday its service sector index slid 6.6 points to 58.2 this month - a sharper fall than expected.
The index remained above the 50 level separating contraction from expansion.
(Financial Times Service)
