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Lackluster Jobs Data Extends 'Groundhog Day' Limbo for the Fed

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And now the Federal Reserve sees 12 more weeks of winter.

The U.S. economy added 151,000 jobs in August, the Labor Department reported Friday -- missing economists' forecasts for 170,000 new positions as the nation's unemployment rate hovered at 4.9% . Combined with very weak manufacturing data released on Thursday, the jobs data makes it much less likely that the Fed will raise the target range for short-term interest rates when it meets this month.

The low number was not a total surprise -- experts like High Frequency Economics' Jim O'Sullivan have emphasized all week that the Labor Department's initial estimate for August is often low and gets raised later.

But a low number was still considered likely to stay the hand of the central bank , which backed off an expected rate increase in June and, earlier in the year, halved an initial forecast of as many as four rate hikes. 

The repetitive stop-and-go scenario is reminiscent of Groundhog Day , the 1993 film in which Bill Murray played a TV reporter who lived a single day over and over until he got it right. (Murray's character had been sent to Punxsutawney, Pa., to record the activities of a groundhog, whose behavior on Feb. 2 has been traditionally linked to the timing of spring weather.)

"The Fed knows about the quirks with the August employment report and that odds are it will be revised higher," Moody's Analytics economist Ryan Sweet said. "However, they could struggle communicating the justification for hiking in September as the public's perception of August employment will be based on the first print, which differs from reality."

It's more likely that the report will convince the Fed to wait again, said Joel Naroff, president of Naroff Economic Advisers.  

"It's not a bad report, given the previous two months and the normal vagaries of the data," Naroff said. "But it is far from strong enough to force the Fed to move, especially given the softness in manufacturing and construction."

Wages aren't doing as well as economists had forecast either, the Labor Department said. Average hourly compensation rose 3 cents to $25.73, for a 2.4% gain in the past 12 months.

With inflation low, real wages are now back to 99% of their level during the Internet boom, according to Sentier Research, and have recovered all of the damage they took in the 2007 to 2009 recession and its aftermath.

"One very discouraging element is the decline in weekly hours," said Richard Moody, chief economist at Regions Financial.  The average work week in July was revised downward to 34.4 hours, and the August figure was even lower, at 34.3, which means it was "a very weak month for personal-income growth," Moody said.

Hiring in cyclically sensitive sectors was all over the map in August. Manufacturers like Ford and General Electric dropped 14,000 workers, after hiring 9,000 last month.