US 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 Labour Department said on Friday, below what would normally be needed to put a dent in the jobless rate.
While the unemployment rate did drop to 8.1 percent from 8.3 percent in July, that 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 drop in employment. --- Unemployment rate falls to 8.1 percent from 8.3 percent
"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 lacklustre report piled pressure on Obama ahead of the November vote in which the health of the economy looms large.
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. 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.
Fed Chairman Ben Bernanke last week said the labour 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, the longest stretch since the Great Depression. Economists say jobs growth in the range of 125,000 a month would normally be needed to cut the unemployment rate.
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 Republican Challenger Mitt Romney a 1-point edge on Obama, 45 percent to 44 percent. While Republicans were quick to seize on the fact that the unemployment rate has held above 8 percent for essentially all of Obama's term, the White House sought a silver lining.
"We've now added private sector jobs for 30 months in a row, 4.6 million jobs have been added over this period," White House economic adviser Alan Krueger said on CNBC. "We'd like to see job growth faster, but the economy is continuing to heal." The lack of headway putting Americans back to work 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 Fed 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.
The weak tenor of the report was also underscored by revisions to June and July data to show 41,000 fewer jobs created during those months than previously reported. In addition, the labour 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 since September 1981.
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. The latest gain left the economy 4.7 million jobs short of where it stood when the recession started.
"In terms of the broader economy, 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 J.P. Morgan in New York. Economists say fears of the so-called US 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 last month, which could weigh on consumer spending after it bounced back in July. Earnings have risen just 1.7 percent over the past 12 months. The average work week was steady at 34.4 hours in August.