U.S. job growth slowed in August, but the unemployment rate dropped to a near 7-1/2-year low and wages accelerated, keeping alive prospects of a Federal Reserve interest rate hike later this month.

    Nonfarm payrolls increased 173,000 last month after an upwardly revised gain of 245,000 in July, the U.S. Labor Department said Friday. August’s gain was the smallest in five months as the factory sector lost the most jobs since July 2013.

    The jobs count, however, may have been tarnished by a statistical fluke that has often led to sharp upward revisions to payroll figures for August after initial weak readings.

    Indicating the hiring slowdown was likely not reflective of the economy’s true health, the jobless rate fell two-10ths of a point to 5.1 percent, its lowest level since April 2008.

    In addition, payrolls data for June and July were revised to show 44,000 more jobs created than previously reported, bringing the average job gains for the past three months to a solid 221,000. Average hourly earnings increased 8 cents, the biggest rise in seven months and the length of the average workweek also expanded.

    “The payrolls data are certainly good enough to allow for a Fed rate hike in September,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York. “The big question is still whether financial market volatility will scupper the plans.”

    Investors seemed to agree. U.S. stocks, which could be pressured by higher rates, were trading lower, while yields on U.S. government debt rose. The dollar was little changed against a basket of currencies.

    While the mixed report did little to alter views that the U.S. economy remains vibrant despite volatile global financial markets and slowing Chinese growth, it could further complicate the Fed’s decision at a policy meeting Sept. 16-17.

    In the wake of a recent global equities sell-off, financial markets significantly scaled back bets on a September rate hike over the past month. But Fed vice chairman Stanley Fischer said last week it was too early to decide whether the stock market rout had made an increase less compelling.

    Economists in a Reuters survey had forecast nonfarm payrolls increasing by 220,000 last month.(SD-Agencies)