NEW YORK (Reuters) - U.S. job growth was less than expected in August and the unemployment rate dropped to a 4-1/2-year low as workers gave up the search for work, which could delay the Federal Reserve scaling back its massive monetary stimulus later this month.
Nonfarm payrolls increased 169,000 last month, the Labor Department said on Friday, adding to signs that third-quarter economic growth may have slowed down a bit. The unemployment rate fell to 7.3 percent, the lowest since December 2008
BONNIE BAHA, HEAD OF GLOBAL DEVELOPED CREDIT AT DOUBLELINE, LOS ANGELES:
"Certainly this much anticipated number didn't provide the ringing endorsement for the start of a Fed tapering program that some market participants had predicted. Given this most recent data point, along with the ongoing situation in Syria, it's unlikely that tapering begins, if at all in 2013, until later this year. Just remember this: if they start tapering and something goes wrong, it would be very difficult to reinstate an expanded QE program at a later date. Their credibility would be shot. They have to get this one right."
SCOTT GRAHAM, HEAD OF U.S. GOVERNMENT BOND TRADING, BMO CAPITAL MARKETS, CHICAGO:
"The revisions, more importantly than the actual number, were revised down pretty aggressively. I think people are questioning whether tapering occurs or doesn't occur. I think that tapering for the most part if already baked into the equation. The market‘s taken back 10 basis points, I think that guys are going to use any rally to continue to liquidate positions with an eye towards tapering. It's probably gone from a foregone conclusion to slightly less of a foregone conclusion, but at the end of the day I still think they pull the trigger."
CARY LEAHEY, SENIOR ADVISOR, DECISION ECONOMICS, NEW YORK:
"The report is clearly weak on the surface. The headline gain in jobs was weaker than expected at 169,000 and perhaps more importantly than that, the revisions to the two previous months' job growth were down. The three-month average job growth is now 148,000 which is the weakest three-month gain over a year. Even the Federal Reserve would conclude that the employment trend is moderating and for that reason alone they probably will have second thoughts about tapering bond purchases this month.
"Unfortunately, the Federal Reserve has proven to be bad at analyzing current economic developments and may brush this report aside in an effort to do what is politically expedient rather than the right thing to do for the economy. Namely, they probably should not begin to taper this month, but if they want to get Congress off their back, they might decide to go thinking there's never a good time to go, so why not go now.
"The market won't care about these details, but will run with the fact that the report will be perceived as weak and that the Fed will now lean against tapering this month."
DOUGLAS BORTHWICK, MANAGING DIRECTOR, CHAPDELAINE FOREIGN EXCHANGE, NEW YORK:
"The revision is the story this morning. With the prior revised 58K lower, and August coming in 11k lower, this NFP number is a major fail for the U.S. administration, with a net result 69K below expectations.
"This further cements my view that the September taper will not happen, with as the FED's Evan's said earlier today, any Taper is hinged on the data. November Taper is now looking more likely. This morning's data is not good. It is becoming a common theme in the U.S. economy: The market gets excited about green shoots, and begins to talk about an end to the great easing cycle; only to have the latest economic data act like a scythe and chop the green shoots down in their infancy. Today's data, in combination with Syrian uncertainties are likely to keep the US Fed on the sidelines for now."
MOHAMED EL-ERIAN, CHIEF EXECUTIVE OFFICER AND CO-CHIEF INVESTMENT OFFICER AT PIMCO, NEWPORT BEACH, CALIF.:
"The market is taking this morning's somewhat disappointing data as suggesting that the Fed will not taper in September. I am not so sure that is the case. The detailed numbers also illustrate the problem of growing inequality in American society."
KIRAN KOWSHIK, CURRENCY STRATEGIST, BNP PARIBAS, NEW YORK:
"Although the unemployment rate was lower, there were negative revisions of 74,000 and that has pushed both U.S. yields and the dollar lower. But those downward revisions come after many months of upward revisions. So overall, I think the trend still shows an improving labor market. We at BNP Paribas believe that the Federal Reserve will taper in December anyway so this report is still consistent with that view."
IAN LYNGEN, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL, STAMFORD, CONNECTICUT:
"The number came in below expectations, and below what people had been anticipating was the whisper number, close to 200,000. People had increased expectations given this week's series of employment related data up until the report.
"The decline in the unemployment rate was also a function of a decreased participation rate so it's less compelling from a broader labor market perspective. The Treasuries market has appropriately rallied here."
WAYNE KAUFMAN, CHIEF MARKET ANALYST AT ROCKWELL SECURITIES IN NEW YORK:
"The revision is a little shocking. This is telling the same story that we've seen for a while: employers are not firing people, but at the same time there's not a lot of hiring going on. But since the report and the revision are disappointing, that increases the odds of the Fed holding steady. That's why we're seeing a plunge in Treasury yields, which is positive for stock prices."
JOSEPH TREVISANI, CHIEF MARKET STRATEGIST, WORLDWIDEMARKETS, WOODCLIFF LAKE, NEW JERSEY:
"The Federal Reserve probably got what it needed in today's jobs report. Job creation was on par with this year's average and that has already been judged by the Chairman and governors as sufficient to curtail and then end the bank's quantitative easing policy."
STOCKS: U.S. stock index futures hit session high in volatile trade BONDS: U.S. bond prices added to earlier gains, FOREX: The dollar fell versus the euro and the yen
GRAPHICS: U.S. nonfarm payrolls: U.S. payrolls grew by 169,000 in August. http://link.reuters.com/ram54t
U.S. unemployment: The jobless rate fell to 7.3 percent in August. But the percentage of unemployed who have been out of work for 27 weeks or longer grew to 37.9 percent and the average unemployment duration rose to 37.0 weeks. http://link.reuters.com/wam54t
(Americas Economics and Markets Desk; +1-646 223-6300)