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.
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.
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