US jobs growth slowed more than expected in August, setting the stage for the Federal Reserve to pump additional money into the sluggish economy this week and dealing a blow to President Obama as he seeks re-election in November.
Non-farm payrolls increased only 96,000 last month, the Labour Department said on Friday. While the unemployment rate dropped to 8.1 per cent from 8.3 per cent in July, this was largely due to Americans giving up the search for work.
The report’s weak tenor was also underscored by revisions to June and July data to show 41,000 fewer jobs created than previously reported. The labour force participation rate, or the percentage of Americans who either have a job or are looking for one, fell to 63.5 per cent – the lowest since September 1981.
The lacklustre report keeps the pressure on Obama ahead of the November vote, in which the health of the economy looms large.
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.
The economy has experienced three years of growth since the 2007-2009 recession, but expansion has been grudging and the jobless rate has held above eight per cent for more than three years – the longest stretch since the Great Depression.
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 as soon as the Central Bank’s meeting on Wednesday and Thursday.
The jobless rate peaked at 10 per cent in October 2009, but progress on 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 one-point edge on Obama, 45 per cent to 44 per cent.
The lack of headway putting Americans back to work has also put the question of further monetary stimulus on the table at the Fed. The Central Bank has held interest rates close to zero for nearly four years and pumped about $2.3 trillion into the economy through two bouts of bond buying.
The weak report makes it more likely that the Fed will launch a third round of bond purchases next week. 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.
Economists blame 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 at the start of next year unless Congress acts – and Europe’s long-running debt problems, for the slowdown in hiring.