WASHINGTON - American employers cut back sharply on hiring last month, crushing hopes that the job market was improving and putting more pressure on the Federal Reserve to give the sluggish economy another jolt.
The Labor Department said Friday that employers added just 96,000 jobs in August, down from 141,000 in July and too few to keep up with population growth. The unemployment rate fell to 8.1 percent from 8.3 percent, but only because many people gave up looking for work and therefore weren't counted in the government's calculation.
The percentage of Americans in the workforce dropped to its lowest level in 31 years.
The latest numbers were "downright dismal," TD Economics senior economist James Marple said in a description echoed by many others.
The economy remains hobbled in the aftermath of the deepest recession since the 1930s and simply isn't expanding fast enough to spark more hiring. Consumers, whose spending accounts for more than two-thirds of economic activity, have been whittling down debts and spending cautiously. The government reported last week that economic growth clocked a disappointing 1.7 percent annual pace in the April-June quarter.
The economy is expected to grow at an annual rate of around 2 percent for the rest of the year, consistent with only 90,000 new jobs a month.
Experts warn of 'perfect storm' for global economy
By DAN PERRY
The Associated Press
CERNOBBIO, Italy - Experts and leaders gathered in Italy may disagree on the cure, but the malady seems clear: the world economy faces a "perfect storm" of risks that include prolonged crisis in a structurally flawed Europe, political paralysis pushing America off a "fiscal cliff," a slowdown in the emerging economies drying up the last of global growth, and the spectacularly destabilizing prospect of war over Iran's nuclear program.
A world of such unpredictable peril is also one in which jitters suppress the appetite for private and corporate risk, yielding meager investment and low consumption and prolonging the woes that snuck up on a booming world in the summer of 2007 as a "credit crunch", mushrooming a year later into the Great Recession.
Many attendees at the annual Ambrosetti Forum at Lake Como on Friday fretted about mounting U.S. debt and the Europe's inability to balance electorates' apparent insistence on national sovereignty with the need for regional coherence to salvage the teetering euro.
But economist Nouriel Roubini predicted years of gloom almost regardless of what is decided.
That analysis is rooted in the specific nature of this crisis, a downward spiral in which a financial meltdown largely caused by excess credit was defused by a blast of public spending; that 2009 stimulus, widely credited with avoiding a global depression, pushed some governments too far into the red for the markets' liking - a "sovereign debt crisis"; and this is turn was attacked through severe austerity measures that suppressed spending to the point that countries cannot grow their way back to prosperity.
The disappointing numbers are a blow to President Barack Obama's re-election campaign. Unemployment is down from a peak of 10 percent in October 2009, but no incumbent president since Franklin D. Roosevelt has faced re-election with unemployment higher than 7.8 percent.
Republican presidential challenger Mitt Romney declared that "the weak jobs report is devastating news for American workers and American families ... a harsh indictment of the president's handling of the economy." Obama said August's hiring was "not good enough" and that it's "a long tough journey" to recover from the recession that officially ended more than three years ago.
Stocks barely budged on the bad report. The Dow Jones industrial average rose nearly 15 points to 13,307.
The job market got off to a strong start this year. Employers added an average 226,000 jobs a month from January through March. But they couldn't sustain that pace, and hiring slowed to a monthly average of 67,000 from April through June.
It looked like things got back on track in July, when the government initially reported 163,000 new jobs, but the Labor Department revised those gains down by 22,000 on Friday.
The August jobs report looks even uglier upon closer inspection. The unemployment rate fell because 368,000 Americans dropped out of the workforce.
"A declining labor force is not (a) sign of an improving economy," says Joel Naroff, president of Naroff Economic Advisors.
Hourly pay fell. Manufacturers cut 15,000 jobs, the most in two years. And temporary help jobs, which often signal where the job market is headed, dropped by 4,900 in August.
The economy lost 7,000 more government jobs last month. Since the recession ended in June 2009, federal, state and local governments have slashed 670,000 jobs, partially offsetting hiring by private companies.
It's the first time since World War II that governments have shed jobs this deep into an economic recovery. At this point - three years and two months- into the nine previous postwar recoveries, government jobs had risen an average of 8 percent. This time, they're down 3 percent.
Most of the government cuts have been made by states and localities. Some school districts in Pennsylvania, for example, have had to lay off teachers after the state cut subsidies.
Kayla Middleton, 26, was one of about 70 teachers furloughed this year by the Reading School District. Middleton says because she has such little seniority "I knew there was no way I was escaping." The job creation and unemployment numbers come from separate surveys. One asks mostly large companies and government agencies how many people they employed during the month. This survey produces the number of jobs gained or lost.
The other is the household survey.
Government workers ask whether the adults in a household have a job. Those who don't are asked whether they're looking for one. If they are, they're considered unemployed. If they aren't, they're not considered in the workforce and aren't counted as unemployed. The household survey produces each month's unemployment rate.