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WASHINGTON (Reuters) - 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 raised, employment gains in July were revised lower and were the weakest since June 2012.
The closely watched employment report suggested the economy lost steam even before an acrimonious budget fight that led to a damaging partial shutdown of the federal government for 16 days.
"The numbers indicate that the economy is growing at a modest pace at best," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California. "Considering the uncertainties from the government shutdown, tapering (of the Fed's bond purchases) has been postponed until further notice."
But there was a silver lining in the report. The unemployment rate fell a tenth of a percentage point to 7.2 percent, the lowest level since November 2008, even as the share of working-age Americans who either have a job or are looking for one held at a 35-year low.
A measure of underemployment that includes people who want a job but who have given up searching and those working part time because they cannot find full-time jobs also fell a tenth of point to 13.6 percent, the lowest since December 2008.
Economists had expected the economy to add 180,000 jobs in September and the unemployment rate to hold at 7.3 percent.
Stocks rose as investors welcomed the prospect of continued monetary stimulus from the U.S. central bank, with the Standard & Poor's 500 index reaching a record intraday high.
U.S. Treasury debt prices also rose and benchmark yields fell to a three-month low. The dollar approached a two-year low against the euro.
The employment report was released more than two weeks later than originally scheduled because of government shutdown earlier this month. With the extent of the economic damage from the fiscal standoff unclear, the Fed will likely hold off any decision on scaling back its bond-buying stimulus.
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.
"We don't look for any material changes to monetary policy at next week's meeting and most likely in December either," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "We are now looking at March."
While the economy was already on the back foot before the government shutdown, the brinkmanship in Washington has dampened expectations of a sharp acceleration in fourth-quarter growth.
Economists estimate the 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.
The shutdown is expected to distort October's employment report as it affected the jobless rate survey.
There are 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.
Payroll growth in the third quarter averaged 129,000 per month, far less than the 200,000 average in the first half of the year. Economic growth forecasts for the quarter are currently just below a 2 percent rate. The economy expanded at a 2.5 percent annualized pace in the second quarter.
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.
Retail employment growth slowed significantly from the solid gains seen for much of this year, with payrolls increasing 20,800. The retail and the leisure and hospitality sectors have been the leading job creators.
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.
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.
Reporting by Lucia Mutikani; Editing by Andrea Ricci and Krista Hughes