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Unemployment rate falls
But job growth slows from July, coming in below forecasts and giving mixed picture of labor market.
September 2, 2005: 10:41 AM EDT

NEW YORK (CNN/Money) - The government Friday gave a mixed picture of the labor market before Hurricane Katrina, reporting a slowdown in job growth last month but the lowest unemployment rate in four years.

The economy created 169,000 jobs in August, compared to a revised gain of 242,000 in July, the Labor Department reported. Economists surveyed by had forecast a gain of 190,000. But job growth for June and July were both revised higher.

The unemployment rate edged down to 4.9 percent -- the lowest in four years and the first time since before the Sept. 11 attacks that the rate has been below 5 percent. Forecasts were for the rate to remain at the 5 percent seen in July.

Despite the improving unemployment rate, average hourly wages rose just 2 cents, or 0.1 percent, to $16.16. That was less than the 0.2 percent gain forecast by economists.

The report is based on surveys taken by the Labor Department the week of Aug. 12, so the impact of Hurricane Katrina, and the subsequent spike in gasoline and energy prices, were not factored into the report.

"Looking forward, we have Katrina and the price of oil to worry about," said Bill Cheney, chief economist with John Hancock Financial Services. "I think the odds are still against it, but Hurricane Katrina could prove to be the exogenous shock that we've feared could dramatically slow or even derail the expansion."

Although Katrina and its growing impact make the August employment report less current than a typical report, it's still important for the flexibility it gives the Federal Reserve, said Anthony Chan, senior economist with JPMorgan Asset Management.

He said that a much stronger report, especially one that showed a stronger rise in wages, would have made it much more difficult for the Fed to consider a pause in its interest rate hikes when the central bank's policy-makers meet on Sept. 20.

"I don't think this report guarantees a pause, but it doesn't stand in the way of a pause if the Fed feels it's something they should look at," Chan said.

In its report, the Labor Department said that manufacturing lost 14,000 jobs in August, but other major sectors showed gains.

Leisure and hospitality added 34,000 jobs, construction employment was up 25,000 and retailers hired 12,000, the department said.

The unemployment rate is based on a survey of households rather than the employer survey, which is used to judge the net change in payrolls. Economists generally consider the household survey less reliable.

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