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Dismal jobs report sends stocks lower

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The U.S. economy added no new jobs in August as employers cut back hiring and trimmed work hours of existing employees — jolting new evidence that the already weak recovery is stalling and that the possibility of another recession is increasing.

The August report, the first to show zero job growth in about a year, sent stocks falling for the second straight day amid concerns that the listless economy is heading for deeper troubles. Major stock indexes saw their biggest losses in more than two weeks, with the Dow Jones industrial average ending Friday down 253.31 points, or 2.2%, at 11,240.26.

Making matters worse, the Labor Department’s report Friday also revised down job growth figures for July, to 85,000 from 117,000 previously reported. It also said employers added just 20,000 net new jobs in June, not 46,000. In all, the government said the economy added an average of just 35,000 jobs a month in the last three months — a figure so small that most analysts would consider it a statistical rounding error.

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The grim employment picture revived bets that the Federal Reserve will launch a new economic stimulus program that is likely to involve the mass purchasing of government bonds. That expectation led long-term Treasury bond yields to tumble to the lowest level in decades Friday.

“The stagnation in U.S. payroll employment is an ominous sign,” said Paul Ashworth, an economist at Capital Economics. “The broad message is that even if the U.S. economy doesn’t start to contract again, any expansion is going to be very, very modest and fall well short of what would be needed to drive the still elevated unemployment rate lower.”

The latest numbers are a dramatic slowdown from the nearly 180,000 jobs added monthly, on average, in the first four months of this year, when it looked like the labor market might finally be recovering. The unemployment rate stayed at 9.1% for August as more people reported finding part-time work, many of them saying that’s all that was available.

About 14 million people were officially unemployed last month. Six million, or nearly 43%, of them, have been without work for six months or longer. In the short term, many of them face the loss of extended jobless benefits. Longer term, they face increasing risks of their skills atrophying and the likelihood of their getting reemployed diminishing.

For investors, the report was yet another alarming signal that more market turbulence is on the way. Traders yanked money out of the stock market, pushing the broader Standard & Poor’s 500 index down 30.45 points, or 2.5%, to 1,173.87.

The financial sector led the way down in the U.S. because of reports that a federal agency that oversees housing giants Fannie Mae and Freddie Mac would bring lawsuits against leading banks over money-losing mortgage securities they sold during the housing boom. A leading bank index finished the day down 4.5%.

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Money shifted into classic havens such as gold and silver. Near-term gold futures up 2.6% to $1,873.70 an ounce — the biggest one-day advance since early August and just 0.8% below the record closing high; silver rose 3.7% to $43.02 an ounce.

The 10-year Treasury note yield, a benchmark for mortgages and other long-term interest rates, ended the day below the once-unthinkable level of 2% at 1.99%, down from 2.13% on Thursday. Shorter-term Treasury yields, however, were slightly higher. The two-year T-note edged up to 0.19% from 0.18% on Thursday.

The reason for the split performance: With short-term rates already near zero, Wall Street now expects the Fed to launch a Treasury bond-buying program specifically aimed at pulling down longer-term interest rates.

Central bankers tried a similar program in the early 1960s. It was dubbed “Operation Twist” because the goal was to twist the so-called yield curve, bringing longer-term rates down while holding shorter-term rates steady or allowing them to rise modestly. Fed Chairman Ben S. Bernanke has hinted in recent months that the central bank could turn to that option if the economy needed more help.

The next Fed stimulus plan “would most likely come in the form of an ‘Operation Twist’-like approach, whereby the Fed sells shorter-maturity assets to purchase longer-maturity assets,” economists at Deutsche Bank Securities said in a report Friday.

don.lee@latimes.com

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nathaniel.popper@latimes.com

Staff writers Tom Petruno and Walter Hamilton in Los Angeles contributed to this report.

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