U.S. employers added far fewer workers than expected in September, suggesting a loss of momentum in the economy that will likely add to the Federal Reserve's caution in deciding when to trim its monthly bond purchases.
Nonfarm payrolls increased by 148,000 workers last month, the Labor Department said on Tuesday. While the job count for August was revised higher, employment gains in July were revised lower and were the weakest since June 2012.
Economists polled by Reuters had expected the economy to add 180,000 jobs in September.
"This report on the labor market will soften people's assessments of current conditions," said Cary Leahey, a senior economist at Decision Economics in New York.
But there was a silver lining in the report. The unemployment rate dropped a tenth of a percentage point to 7.2 percent, the lowest level since November 2008.
Prices for U.S. government debt rose, while the dollar fell against the euro and the yen. Stocks rose as investors welcomed the prospect of continued monetary stimulus from the U.S. central bank, pushing the Standard & Poor's 500 index to a record intraday high.
The closely watched employment report was released more than two weeks later than originally scheduled because of the partial shutdown of the federal government earlier this month.
Signs the economy lost steam even before the acrimonious budget fight could convince the Fed to hold off any decision on scaling back its bond-buying stimulus until the extent of the economic damage from the fiscal standoff is clear.
Economists estimate the 16-day government shutdown shaved as much as 0.6 percentage point off annualized fourth-quarter gross domestic product, through reduced government output and damage to both consumer and business confidence.
Fed officials will meet next Tuesday and Wednesday to discuss monetary policy. They surprised markets last month by sticking to their $85 billion per month bond-buying pace, saying they wanted to see more evidence of a strong recovery.
FED SEEN ON HOLD
Now, many economists think the Fed will hold off on scaling back economic stimulus until next year.
"This really raises the question for the Fed and Fed policy. They will be hard pressed to argue that there's improvement in the labor market," said Craig Dismuke, chief economist at Vining Sparks in Memphis, Tennessee.
There are also fears lawmakers will engage in another economically costly fight early next year when Congress must agree on a budget to fund the government and once again raise the nation's borrowing limit.
"With the possibility of a replay of the budget showdown as early as mid-January, why would the Fed want to pull any levers now? It's hard to expect any tapering of the Fed's bond purchases until the budget mess straightens itself out," Leahey said.
Employment gains in September were mixed across sectors.
Government payrolls increased by 22,000 jobs after rising by 32,000 in August. Both state and local governments added jobs last month, offsetting a decline in federal employment.
The data showed surprise weakness in the leisure and hospitality industry, which has been adding jobs consistently over the past years. The industry lost 13,000 jobs, the most since December 2009.
The information sector failed to recoup all the jobs lost in August, when the motion picture industry shed workers, with payrolls only rising 4,000 last month.
But there was good news in the construction industry, where payrolls increased 20,000. Construction employment had barely increased over the prior two months, and the gain in September could ease fears of a leveling off in home building.
Those concerns could be further allayed by a separate report from the Commerce Department showing construction spending at a near 4-1/2-year high in August as outlays on both private and public projects increased solidly.
In September, the manufacturing sector added a meager 2,000 jobs as automobile assemblies shed some positions. Retail employment increased 20,800, slowing somewhat from the solid gains seen for much of this year.
Average hourly earnings increased three cents in September. They have risen 49 cents or 2.1 percent over the past 12 months. The length of the average workweek held steady at 34.5 hours.