Hiring slowed in August, adding to pressure on Fed and Obama
Labor • Unemployment dips to 8.1 percent as fewer looking for jobs.
Published: September 7, 2012 07:23AM
Updated: December 25, 2012 11:31PM

Job growth slowed noticeably in August, increasing the political pressure on the White House and strengthening the argument for new action by Federal Reserve policymakers to stimulate the economy when they meet next week.

The economy added a total of 96,000 jobs in August, down from a revised figure of 141,000 in July and well below the 125,000 level economists had been expecting.

The latest figures confirm suspicions that the economy has been treading water recently — over the past six months, monthly job growth has averaged 97,000, typically not enough to absorb new entrants into the labor force, let alone reduce the unemployment rate.

For August, the jobless rate fell to 8.1 percent, from 8.3 percent in July, but economists said that was a sign more unemployed workers were dropping out of the workforce, rather than an indication that new jobs were being created.

Republicans have made persistently high unemployment a centerpiece of their argument for denying President Barack Obama a second term, and the new figures give the White House little to boast about.

“This is one of those reports that as you dig deeper, it looks less friendly,” said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. “The improvement in the rate was purely due to people who gave up looking for jobs.”

He noted that the government report showed the overall labor force dropped by 368,000 workers in August.

Underscoring the political challenge the latest numbers pose for Obama, the percentage of the population in the labor force fell to 63.5 percent, the lowest level since September 1981. The number of adults not in the workforce at all jumped by 581,000, to 88.9 million.

“Politically, you can spin the drop in the rate as a positive, but it’s a sign of weakness,” Harris said. “The economy is slowing down and it wasn’t very robust to begin with.”

Ben Bernanke, the chairman of the Federal Reserve, last week delivered a forceful argument for more action, calling the current unemployment level a “grave concern.”

The Federal Reserve’s Open Market Committee convenes Wednesday and Thursday, and many economists and traders are looking for major news to come out of the meeting. One possibility is another round of asset purchases aimed at lowering borrowing costs and boosting investments. A more limited option would be for the Fed to extend its benchmark interest rate, set near zero, into 2015 from late 2014.

Despite the disappointing jobs report, trading on Wall Street was mostly flat, with the Standard & Poor’s 500-share index posting a slight gain in trading.

Many traders were counting on bold action by the Federal Reserve, but economists were divided about just how far the Fed would go.

One problem for the Fed in embarking on more quantitative easing is that such action tends to lower the value of the dollar against foreign currencies. Besides driving up the price of commodities such as oil, it also would do little to help China or Europe avert a further slowdown.

The rate of job creation has been erratic in 2012. After adding more than 200,000 jobs in both January and February, the economy slowed and by June the gain totaled an anemic 80,000. It bounced back in July, but few economists see big gains in the coming months.

Friday’s report showed that the private sector created a total of 103,000 jobs in August, while the number of government jobs fell by 7,000.

In order to make a significant dent in the unemployment rate, the economy would have to add at least 200,000 jobs a month, assuming modest growth in the labor force.

The manufacturing sector, a closely watched barometer for the broader economy, lost 15,000 jobs.

Sectors that did show growth in employment tended to be lower-paying ones, said Mark Vitner, a senior economist with Wells Fargo. About 40 percent of the new jobs came from four sectors: retail, leisure and hospitality, temporary help services, and home health care services.

“This is one of the reasons wages haven’t been growing,” he said. “People are taking jobs they didn’t take in the past, moving from sectors like construction into jobs at lower-paying, big-box retailers.”

There were other signs the economy remained stuck in low gear. Average hourly earnings ticked downward by 1 cent in August to $23.52 while the length of the typical private sector workweek remained flat at 34.4 hours. Both measures have barely budged from where they were six months ago.