Lower than expected US job creation thought to postpone Fed interest rate hike

The jobs market in the US is recovering at a weaker pace than expected according to figures published by the Department of Labor meaning the Federal Reserve will probably hold off a planned interest rate hike.

In August, 173,000 jobs were created in the US compared to market expectations of around 220,000. The figures are seen as a benchmark of the US economy but also influence any decisions on rates by the Fed.

The US unemployment rate hit a seven-year low of 5.1%, but this was attributed to 41,000 leaving the work force in August, rather than an actual record decline in unemployment.

The Dow Jones Industrial average briefly fell by 225 points on opening.

Nariman Behravesh, chief economist at IHS Global Insight, said that the figures, which have been received as negative but have also confused analysts and investments, would complicate the Fed's decision about a rate hike.

"The August jobs report was decidedly mixed," said Behravesh. "The monthly payroll survey showed a below-expectations increase. Meanwhile, the unemployment rate fell to the lowest level since early 2008 and wage inflation showed some signs of life.

"The weakness in August employment should not be over-interpreted. The August data on jobs are often distorted by seasonal factors (e.g. a surge in teachers being hired at the start of the school year). Moreover, August data are almost always revised up — sometimes substantially. More important, the three-month and year-to-date averages look solid."

The Federal Open Market Committee is deciding on the interest rate during its meeting on 16 and 17 September, and a US rate hike, much like in the UK, has been long expected. However, recent financial turmoil from China's stock markets and the mixed figures from the Labor Department, have signalled that the Fed might put off an increase for a bit longer.