Disappointing job growth in September indicates the economic slowdown in China and elsewhere has started to hurt the U.S., and that probably means the Federal Reserve won't hike a key interest rate this month — or maybe even this year.
The Labor Department said Friday that the U.S. economy added 142,000 net new jobs last month, well short of analyst expectations.
On top of that, job gains in July and August surprisingly were lowered by a combined 59,000 positions while average hourly wages fell for the first time since last year.
Although the unemployment rate in September held steady at 5.1%, the lowest since 2008, it was mainly because about 350,000 people dropped out of the civilian labor force. The percentage of adults either employed or actively looking for work declined to just 62.4% last month, the lowest since 1977.
"There is no sugar-coating this report," said John Canally, chief economic strategist at LPL Financial, a brokerage and investment advisory firm. "If you're the most bullish person in the world, you can't find one kernel of good news in it."
The Dow Jones industrial average fell about 250 points on the news in early trading. But it rebounded to close up 200.36 points, or 1.2%, at 16,472.37.
Economists had expected that job growth would bounce back last month after lackluster gains the previous month. The initial August figure of 173,000 net new jobs was downplayed by some analysts as low-balling the actual growth because of the difficulty of calculating jobs when auto factories are shutting down for summer retooling and schools are gearing up to open.
But September job growth fell below forecasts of 203,000. And instead of revising up August's figure as expected, the Labor Department revised it down sharply to 136,000.
The one-two punch of a weak September report and a big downward revision the previous month signaled potential trouble for the U.S.
After averaging 260,000 net new jobs a month last year, the labor market is averaging just 167,000 during the past three months.
"It's clearly negative news for the economy," said John Silvia, chief economist for Wells Fargo Securities.
The nation doesn't appear to be heading toward a recession. But after the economy expanded at a robust 3.9% annualized rate in the second quarter, growth in the third quarter is now expected to fall well below 2%.
Fed policymakers held off on a long-awaited interest rate hike last month because they wanted to see more data to determine if weak growth abroad had hit the U.S.
On Friday, their fears appeared to be realized.
"The Fed looks like it was the smartest set of folks on the block because they warned everybody about potential head winds from the weak global economy," said William E. Spriggs, chief economist for the AFL-CIO, the nation's largest affiliation of labor unions.
Fed Chairwoman Janet L. Yellen said last week that she expected a rate hike by year's end. That's also now in question, said Chris Rupkey, chief financial economist at Union Bank in New York.
"The idea the U.S. economy could power forward while the rest of the world is stalling out, that idea can be put in the garage bin," he said.
Low oil prices took their toll on the mining industry, which shed 12,000 net new jobs last month after a loss of 9,000 positions in August. Over the last year, the sector has lost about 100,000 jobs.
Meanwhile, manufacturers have been hurt by the rising value of the dollar as the U.S. economy has outpaced those of other nations.
With U.S. goods more expensive abroad, the manufacturing sector cut its payrolls by 9,000 net jobs in September, on top of 18,000 lost the previous month.
The weakness in those sectors has started affecting other areas of the economy, Silvia said. "The global slowdown has definitely had a broader impact" on the U.S., he said. "It isn't just the manufacturing sector that's paying the price."
With the strong dollar also hurting American competitiveness globally, total U.S. exports this year through July were down 5% from a year ago, and preliminary reports for August indicate shipments declined 10% for that month. China's weakness has squeezed commodity prices, and that's crimped American sales of grain and other food products. U.S. capital goods and automobile exports are skidding too.
What's less obvious is how much the overseas troubles are weighing on the much larger U.S. service industry and employment.
"Certainly financial markets have been weaker over the last two months and that may have played a role in delaying hiring," said Dean Maki, chief economist at Point72 Asset Management in Stamford, Conn.
Another alarming development was the first decline in wages since December. Average hourly earnings fell by 1 cent to $25.09 last month, after rising by 9 cents in August.
Workers such as Michaela Hudson, 18, of St. Paul, Minn., are struggling to find good-paying full-time jobs.
In the mornings, she cleans a Macy's store for $9 an hour. Then many afternoons she waits in line for a chance to sell hamburgers and fries at a concession stand at Target Field in Minneapolis for $9.50 an hour.
"I've been looking for a permanent job for about three months. Nine dollars an hour isn't a living wage," she said. "You have to work constantly ... and you get home tired every day."
Staff writer Don Lee contributed to this report.