US payrolls unexpectedly drop by 4.000

Nonfarm payrolls unexpectedlyfell by 4.000 in August as opposed to expectations for a 108.000 growth raising the prospect of a rate cut by the FOMC on September 18, 2007, which sent the dollar sharply lower. 

Employers cut 4,000 workers from payrolls, compared with a revised gain of 68,000 in July that was smaller than previously reported. The unemployment rate held at 4.6 percent as almost 600,000 people left the workforce.

The drop in jobs is the clearest sign yet that the deepening housing recession and turmoil in credit markets are hurting the wider economy. Payrolls are one of the main factors, along with sales, incomes and production, that help determine the starting point of economic contractions, and the report may raise the odds the Fed reduces rates even before the Sept. 18 meeting.

Wages gained 3.9 percent in August from a year earlier. Workers’ average hourly earnings rose 5 cents, or 0.3 percent, after a 0.3 percent increase the previous month.

Manufacturing jobs contracted by 46k, construction jobs by 22k and even the government shed jobs by 4k. Service industries, which include banks, insurance companies, restaurants and retailers, added 60k workers last month. Retailers added 12,5k jobs.

The dollar fell to $1.3765 agains the euro, sterling rallied to $2.0310 and the dollar fell to JPY 114.25 and CHF 1.1920.