U.S. employment fell for a third straight month in August, but the decline was far less than expected and private payrolls growth surprised on the upside, easing pressure on the Federal Reserve to prop up growth.

KEY POINTS: * Nonfarm payrolls fell 54,000, the Labor Department said on Friday as temporary jobs to conduct the decennial census dropped by 114,000. * Private employment, considered a better gauge of labor market health, increased 67,000 after a revised 107,000 gain in July. In addition, the government revised payrolls for June and July to show 123,000 fewer jobs lost than previously reported.

COMMENTS:

KIM RUPERT, MANAGING DIRECTOR OF GLOBAL FIXED INCOME ANALYSIS, ACTION ECONOMICS LLC, SAN FRANCISCO:

I think the report is fairly mixed so it's going to be difficult to try to really interpret and make any headway.

The report is a little bit better than many had feared and then we had some pretty significant upward revisions to June and July. Additionally average hourly earnings jumped 0.3 percent. Those were better-than-expected factors.

We also saw rebound in household employment and in the civilian labor force. Nevertheless the unemployment rate inched up a little but -- 9.6 percent -- that was pretty much the consensus, however.

I think bonds are going to watch what stocks might do today. We've seen some pretty hefty asset allocation trades out of bonds and into stocks. I think if stocks get a sense that maybe the situation isn't as dire as presumed they might see a little bit more upside into the long weekend. That may weigh on Treasuries.

We also have supply next week and that might be an extra incentive to cheapen up the Treasury market a little. Although ahead of the long weekend we might not see huge moves sustained.

MICHELLE MEYER, SENIOR U.S. ECONOMIST, BANK OF AMERICA MERRILL LYNCH, NEW YORK, NEW YORK:

Overall this was a better-than-expected report and the drop in the unemployment rate indicates more people entering the labor force. Although wages are still soft, they are starting to improve. On a larger scale, we still think this is clearly a soft labor market, especially given the 8.5 million jobs that were lost during recession. This leaves the Fed on hold for now. While the economy is still soft, but at least it is expanding. Unless the Fed sees a double-dip recession or deflation as a risk, the Fed will be in wait-and-see mode and we do not expect fed hikes until 2012. The stock market should be happy about this report, while this does not bode well for bonds.

ALAN LANCZ, PRESIDENT, ALAN B. LANCZ & ASSOCIATES INC., TOLEDO, OHIO:

The stock market was in rally mode anyway as far as sustaining its lower trading range and coming back from an oversold condition. There's nothing in these numbers that would scare the bulls, and you can see some rays of light that would be a catalyst for some buyers.

The numbers are better than consensus, and an improvement in the hourly wage is positive and an uptick as far as hours worked. Those are usually positive signs, and as those increase, eventually the jobs numbers will improve.

You see the light at the end of the tunnel, and in prior reports, you definitely didn't see that.

MOHAMED EL-ERIAN, CO-CHIEF INVESTMENT OFFICER AT PACIFIC INVESTMENT MANAGEMENT COMPANY, NEWPORT BEACH, CALIF.:

A mixed report that was better than expected. The report points to some areas of dynamism but, unfortunately, in the context of continued headwinds to a sustained fall in the rate of un- and under-employment.

NIGEL GAULT, CHIEF U.S. ECONOMIST, IHS GLOBAL INSIGHT, LEXINGTON, MASSACHUSETTS:

If you look at it in absolute terms, it's not very good. But relative to expectations, it's clearly better than expected and it suggests we're still growing. We're not growing very fast, but it doesn't suggest the situation is continuing to deteriorate.

The other good thing you can see there is an increase in average hourly earnings, three-tenths of 1 percent. That's a good increase, so even though hours worked didn't go up, spending power will have gone up because the earnings were higher.

So overall you'd have to say, it's not a great report, but it's a bit better than expected and it does not indicate that we're into some sort of headlong plunge into a double-dip.

ROBERT DYE, SENIOR ECONOMIST, PNC FINANCIAL SERVICES GROUP, PITTSBURGH:

It still showed a decline, which is a net drag on the economy, but it actually came in a little bit better than we thought. The good news in this report is that private sector employment was up 67,000 for the month so that was a little bit stronger than expectations. There were positive revisions for June and July, we saw a net positive revision of 130,000 jobs for those two months. Earnings were up for the month and hours were flat.

You have to take these earnings reports relative to expectations, so all in all this will be reviewed as a favorable report showing that the private sector is stabilizing and once we get past the drag from the census -- and I think we are close to being past the drag from the census -- that we will start to see some positive numbers for the totals in the months ahead.

FABIAN ELIASSON, VICE PRESIDENT, CURRENCY SALES, MIZUHO CORPORATE BANK, NEW YORK:

It was a complete surprise on the upside, and even the revisions were much better. But just as trading on the bad U.S. data recently was overdone, I think sentiment on this week's positive reports is also going to be overdone. I think we're still looking at a quite slow and painful recovery. You have a lot of people unemployed, so it's a long way back to normal. Sixty-seven thousand new jobs isn't too much in the big picture. This report might mitigate some talk of double-dip recession, but I think everything is still pointed to a slow recovery.

PHIL ORLANDO, CHIEF EQUITY MARKET STRATEGIST, FEDERATED INVESTORS, NEW YORK:

This was a much better-than-expected report. Not only were the August numbers pretty good but the July numbers were also revised up, that is to say better. The only number here and I don't have the detail is the loss of manufacturing jobs in August which I can't explain. Every other indicator that we've been looking at suggested manufacturing was starting to come back, maybe there is a bit of a lag there. But I'm inclined to think that is a blip and that number comes back in the fall.

The last fortnight, the data has started to firm. We felt given the expiration of the housing credit and the peak of the census cycle, we would hit an economic soft patch over the summer but things would start to firm over the August/September time frame. As if on cue, numbers have started to get a little better, and this is another big number in that direction.

LAWRENCE GLAZER, MANAGING PARTNER OF MAYFLOWER ADVISORS IN BOSTON:

The private sector is fairly lean at this point and is positioned relatively well. In the Treasury market, you are seeing a continuation of the last couple of days, which is yields moving up. The question now is: When investors digest this data and when volume returns on Tuesday, will you see a continued reversal out of Treasuries and into equities?

CORT GWON, DIRECTOR OF TRADING STRATEGIES AND RESEARCH, FBN SECURITIES, NEW YORK:

It was better than expected, and the revisions were also good. I hope that means this represents the bottom, in terms of the labor market. It's a very good number; we were expecting a drop of 100,000 to 120,000. Obviously one month doesn't make a trend, but hopefully this means the next couple of months will show continued growth.

KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH, GFT, NEW YORK:

These are very nice numbers for the labor market. Not only do we get an upside surprise in overall payrolls but we also get upward revisions and a surprise in private payrolls. This will be short-term relief to currency and equity markets by reducing stress on the Federal Reserve to add more stimulus. It means for the time being, some of the fears of weakness in the U.S. economy may be misplaced as the data shows the labor market is not as bad as feared.

MARKET REACTION: STOCKS: U.S. stock index futures spiked higher BONDS: U.S. Treasury debt prices added to losses DOLLAR: U.S. dollar rallied against the yen and euro.

Fall