U.S. employers added 128,000 workers to their payrolls in August, evidence of a cooler -- but still solid -- pace of economic growth that could let the Federal Reserve hold interest rates steady, according to Reuters. The closely watched Labor Department report, issued on Friday just ahead of the Labor Day holiday weekend, showed the unemployment rate dipped to 4.7 percent from 4.8 percent in July, suggesting the job market remains sturdy. Other reports on Friday showed a slight slowing in factory activity last month and big drops in both construction spending and pending home sales in July that offered the latest evidence of the faltering U.S. housing market. But consumer sentiment held up better in August than many economists had expected and analysts said the economy appeared to be decelerating, though not abruptly. "It looks an awful lot like a soft landing, at least for now," said Dana Johnson, chief economist at Comerica Bank in Detroit. "It's an economy that is not firing on all cylinders -- it's got a clear concentration of weakness in the housing sector -- but, otherwise, an economy that is moving ahead at something resembling a trend-like pace." The deluge of data left financial markets comfortable with bets that the U.S. central bank has finished raising interest rates and would turn to cut them next year, with bond prices and the dollar little changed. Stock prices, however, got a boost, as investors welcomed the not-too-hot, not-too-cold economic picture. The blue chip Dow Jones industrial average .DJI closed up 83 points. The closely watched employment report showed a slight pickup in payroll growth after an upwardly revised 121,000 job gain in July and was largely in line with analysts' forecasts. Some details, however, were softer than expected. Average hourly earnings rose a slim 2 cents, or 0.1 percent, last month. While that left the 12-month gain at a five-year high of 3.9 percent, economists had braced for a sharper monthly rise. In addition, the length of the average work week dipped by 0.1 hour to 33.8 hours, pulling down an index of overall hours worked, in a potential sign of softer growth. "All in all, it's a very inflation-friendly and Fed-friendly report," said Richard Yamarone, chief economist at Argus Research in New York. "It doesn't suggest any economic frailty, but it supports a sidelined Fed." After raising benchmark borrowing costs in 17 small steps dating back to June 2004, the Fed stepped to the sidelines at its last meeting on Aug. 8 and held interest rates steady. Interest-rate futures contracts put the implied chances of a increase in borrowing costs at the Fed's next meeting on Sept. 20 at only about 6 percent after Friday's data. A Reuters poll of 21 top Wall Street firms that deal directly with the Fed in the markets found only one expecting a rate rise later this month. Twelve said the Fed was likely finished raising rates. FACTORIES COOLER, HOUSING ON ICE Separately, the Institute for Supply Management said its index of factory activity slipped to 54.5 in August from 54.7 in July, showing continued growth at a slightly slower pace. At the same time, the prices paid index fell to 73.0 from 78.5, a sign of receding price pressures. Another report showed consumer sentiment falling in August, but by less than expected. The University of Michigan's sentiment index fell to 82.0 from 84.7 in July. Two other reports combined to underscore the sharp weakening that has been evident in the U.S. housing market. The Commerce Department said construction spending tumbled by 1.2 percent in July, the biggest drop since August 2001, as spending on homebuilding plummeted 2 percent. At the same, the National Association of Realtors said its index of pending homes sales -- a gauge of contracted sales waiting to close -- plunged 7 percent in July to the lowest level in more than three years. The drop was the biggest on records dating to 2001. The jobs report, however, showed construction payrolls expanded by 17,000 in August, with residential construction employment up marginally for a second straight month.
