WASHINGTON (Reuters) - Jobs growth slowed sharply in August, setting
the stage for the Federal Reserve to pump additional money into the
sluggish economy next week and dealing a blow to President Barack Obama
as he seeks re-election.
Nonfarm payrolls increased only 96,000 last month, the
Labor Department said on Friday, below what would normally be needed to
put a dent in the jobless rate. Payrolls had grown by 141,000 jobs in
July.
While the unemployment rate dropped to 8.1 percent from
8.3 percent, it was only because many Americans gave up the hunt for
work. The survey of households from which the jobless rate is derived
actually showed a decline in employment.
"The economy is crawling up the down escalator and
today's report can only give ammunition to the activist members of the
Fed board to loosen monetary policy further next week," said Patrick
O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey.
The lackluster report piled pressure on Obama ahead of the November vote in which the health of the economy looms large.
While acknowledging the tepid pace of job growth, Obama
laid the blame for the labor market's woes on Congress, in particular
Republicans.
"If Republicans are serious about being concerned about
joblessness, we could create a million new jobs right now if Congress
would pass the job plans I sent to them a year ago," Obama said at a
campaign rally in Portsmouth, New Hampshire.
Republican presidential nominee Mitt Romney said Obama
had done nothing during his first term in office to inspire confidence
among Americans in his economic policies.
"Seeing that kind of report is obviously disheartening
for the American people who need work and are having a hard time finding
work," Romney told reporters in Sergeant Bluff, Iowa.
The weakness was virtually across the board, with
average hourly earnings slipping and manufacturing -- the star of the
recovery from the 2007-09 recession -- shedding jobs for the first time
in nearly a year.
The data dampened spirits in U.S. stock markets, which
were little changed in afternoon trade after posting sharp gains earlier
in the week. Treasury debt prices rallied on prospects of bond
purchases by the Fed next week, while the dollar dropped to a near
four-month low against the euro.
Economists polled by Reuters had expected payrolls to
rise 125,000 last month, but some had pushed their forecasts higher
after upbeat data on Thursday.
LOOKING FOR A SILVER LINING
Fed Chairman Ben Bernanke last week said the labor
market's stagnation was a "grave concern," a comment that raised
expectations for a further easing of monetary policy.
The economy has experienced three years of growth since
the 2007-09 recession, but the expansion has been grudging and the
jobless rate has held above 8 percent for 43 straight months,
essentially all of Obama's term and the longest stretch since the Great
Depression. Economists say jobs growth in the range of 125,000 a month
would normally be needed just to hold the unemployment rate steady.
The jobless rate peaked at 10 percent in October 2009,
but progress reducing it stalled this year, threatening Obama's bid for a
second term. An online Reuters/Ipsos poll on Thursday gave Romney a
1-point edge on Obama, 45 percent to 44 percent.
The lack of headway putting Americans back to work also
has put the question of further monetary stimulus on the table at the
Fed, which meets on Wednesday and Thursday. Some economists who had
thought the central bank might bide its time said the jobs data made
action next week more likely than not.
The central bank has held interest rates close to zero
for nearly four years and has pumped about $2.3 trillion into the
economy through two bouts of bond buying, or quantitative easing, to
drive borrowing costs lower and spur growth.
In addition, it has said it expects to hold rates near
zero at least through late-2014, a pledge that is also in play at next
week's meeting.
"We expect the Fed to extend its 'low-rates' guidance
through mid-2015, and to launch a third round of quantitative easing
worth $500-$600 billion," said Nigel Gault, chief U.S. economist at IHS
Global Insight in Lexington, Massachusetts.
"We don't think these measures will be very effective
in boosting growth, but for the Fed it's a question of trying to do what
it can."
"STUCK IN THE MUD"
The weak tenor of the report was underscored by
revisions to June and July data that showed 41,000 fewer jobs created
during those months than previously reported.
In addition, the labor force participation rate, or the
percentage of Americans who either have a job or are looking for one,
fell to 63.5 percent in August, the lowest in 31 years.
A total of 368,000 people gave up looking for work last month, the household survey showed.
Since the beginning of the year, job growth has
averaged 139,000 per month, compared with an average monthly gain of
153,000 in 2011. Last month's increase still left the economy 4.7
million jobs short of where it stood when the recession started.
"Today's numbers should check any enthusiasm that the
economy was gaining momentum toward the end of the summer. Instead, the
economy appears to remain stuck in the mud," said Michael Feroli, an
economist at JPMorgan in New York.
Economists say fears of the so-called U.S. fiscal cliff
-- the $500 billion or so in expiring tax cuts and government spending
reductions set to take hold in 2013 -- and Europe's long-running debt
problems have made businesses cautious about hiring in an already
sluggish recovery.
Manufacturing payrolls fell 15,000, largely because of
declines in automobile assembly jobs. Factory jobs were inflated in July
because auto manufacturers kept plants running when they would normally
shut them for retooling.
There was little improvement in construction
employment, which added 1,000 jobs, even though home builders continued
to break ground on new projects at a fast clip. Temporary employment,
seen as a harbinger of future permanent hiring, declined for the first
time since March.
Retail jobs were one of the few bright spots,
rebounding after declining for two straight months. While payrolls at
utilities grew 8,800, that was a snap back from a strike in July.
Government payrolls declined for a sixth straight
month, dragged down by state and local governments as they continue to
tighten belts to balance their budgets.
Average hourly earnings fell one cent, which could
weigh on consumer spending. Earnings have risen just 1.7 percent over
the past 12 months.
The average work week was steady at 34.4 hours in August.
(Additional reporting by Jason Lange in Washington and Sam Youngman in Iowa; Editing by Andrea Ricci)