Job growth slows in August
WASHINGTON — Job growth slowed significantly and droves of workers dropped out of the labor market in August, increasing the odds that the Federal Reserve will step in to boost the economy and highlighting the political peril a continued sluggish recovery poses for President Obama’s reelection.
Employers added 96,000 jobs last month, below the expectations of most economists, and down from 141,000 in July. Manufacturers shaved their payrolls for the first time in about a year, and budget-constrained state and local governments continued to cut workers, the Bureau of Labor Statistics reported Friday.
The unemployment rate dropped to 8.1% from 8.3%, but that decline came because the labor force shrank by 368,000 from the prior month, suggesting that many workers were so discouraged they gave up on job searches.
The political impact of the report likely will be muted because most voters already have strongly held views of where the economy stands. Jobs reports over the previous several months have had no measurable impact on polls of the presidential race, which has remained static and extremely close.
But on Friday, the tepid numbers threatened to disrupt the momentum Obama and his aides hoped would come with the end Thursday of the Democratic National Convention and renewed a talking point for Republican nominee Mitt Romney, allowing him to refocus the debate on economic issues.
“After the party last night, the hangover today,” Romney said to reporters in Sioux City, Iowa. “The jobs numbers were very disappointing. Real incomes, real wages are also not rising. This is a tough time for the middle class of America.”
In Portsmouth, N.H., Obama tried to look on the bright side, noting that the economy had now produced a net increase in jobs for 30 months in a row.
“We know it’s not good enough,” he said.
“We need to create more jobs faster,” he said. “We need to fill the hole left by this recession faster. We need to come out of this crisis stronger than when we went in.”
Friday’s report deflated recent hopes that the economy may be gaining some steam.
Many analysts predicted job growth of 125,000 in August, and some expected even stronger numbers after a survey released Thursday projected private-sector job growth of about 200,000. Excluding losses in government jobs, the Labor Department put private-sector growth at 103,000 jobs.
The job market is “still so weak that it kicks people out or discourages people from coming into the labor force,” said Heidi Shierholz, an economist at the Economic Policy Institute in Washington.
Other signs had suggested that economic growth was looking better. Retail sales have ticked higher, the housing market is reviving and the European Central Bank on Thursday announced its most aggressive plan to ease the continent’s debt crisis.
But without stronger hiring by employers, there’s little chance that consumers will have the incomes and the confidence to spend robustly. And consumer spending accounts for about 70% of American economic activity.
If the jobs report had come in stronger, it could have given an additional boost to Obama following the Democratic convention, which political analysts in both parties saw as fairly successful.
On Friday, Gallup’s tracking poll showed 52% of American adults approve of Obama’s performance in office, an increase of 3 percentage points over Thursday, and up 9 points since the end of the Republican National Convention. The poll provides a three-day running average, so it reflects the period during the Democratic convention.
Obama now leads Romney 48% to 45% in Gallup’s seven-day average, compared with 47% to 46% a day before. That increase suggests the poll could show a more significant lead in the days to come as it includes fewer of the days after the GOP convention.
On the other hand, the poor jobs report — and the downbeat news coverage it generated — could dampen any post-convention poll bounce. Many voters learn about political conventions not by watching them, but by seeing coverage in the days following the events. On Friday, coverage of the jobs report competed with convention recaps for attention.
The bigger concern for Democrats is the possibility that the economy could worsen in a more dramatic way. Some polls have detected an increase in economic anxiety in the past few weeks — a worrisome possibility for the president and his team.
The timing of the jobs report — the day after Obama’s acceptance speech — was coincidental. The Bureau of Labor Statistics releases the numbers on the first Friday of each month.
If there is a silver lining in the jobs report, it’s that the Fed is now even more likely next week to announce a new round of bond-buying to lower long-term interest rates.
Chairman Ben S. Bernanke had signaled he was keen on taking action unless the job market improved, warning a week ago that “the stagnation of the labor market in particular is a grave concern.”
The expectation the Fed will intervene soothed investors’ disappointment. Major stock indexes were largely flat Friday after surging a day earlier to levels not seen in several years, largely because of the news from the European Central Bank.
Neither the plan by Europe’s central bank to deal with the sovereign debt crisis in the Eurozone nor a move by the Fed would generate quick results.
“To the extent it has a positive effect on the labor market, it will occur only with a lag,” said Patrick O’Keefe, economic research director at J.H. Cohn, an accounting and advisory firm in New Jersey. “We should anticipate crawling for a long time to come.”
The economy has recovered roughly half of the 8.7 million jobs lost during the 2007-2009 recession, creating an average of about 150,000 jobs a month since early 2010. The pace picked up last winter to about 250,000 a month, but fell back to about 100,000 on average over the last six months. That’s barely enough to absorb new workers entering the labor force.
Despite the drop-off, most analysts don’t think the recovery is deteriorating.
Jared Bernstein, former chief economist for Vice President Joe Biden, said that more economic growth and more aggressive action from the Fed could produce 150,000 new jobs a month. “That would help slowly knock down the unemployment rate,” he said.
The details in the August jobs report were not particularly encouraging.
Manufacturing, which had been the star of the recovery, lost 15,000 jobs in August. Employment in the temporary-help sector, often considered a harbinger of broader hiring activity, dropped by 4,900.
Of the job gains, 28,000 of the 96,000 net new positions were in food and drinking establishments, which typically pay lower wages and offer fewer hours.
Among better-paying businesses, computer-system design firms added 11,000, and management and technical consulting employment grew by 9,000. Healthcare employment, which has a mix of high- and low-paying jobs, rose by 17,000 jobs, down from an average gain of 28,000 in the prior 12 months.
“A disproportionate share of new jobs have been in low-paying sectors,” said Dean Baker, co-director of the Center for Economic and Policy Research.
“This should be expected,” he said in a research note Friday. “The quality of the jobs is, in part, a function of the quantity. When the unemployment rate is low, there are still bad jobs being created, but they just go unfilled.”
Christi Parsons in Iowa City, Iowa, and Maeve Reston in Orange City, Iowa, contributed to this report.
