Seth Wenig, File, Associated Press
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, so they were no longer counted as unemployed.
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.
The disappointing numbers are a blow to President Barack Obama's re-election campaign. Unemployment is down from a peak of 10 percent in October 2009, but no incumbent president since Franklin D. Roosevelt has faced re-election with unemployment higher than 7.8 percent.
Republican presidential challenger Mitt Romney declared that "the weak jobs report is devastating news for American workers and American families ... a harsh indictment of the president's handling of the economy."
Obama said August's hiring was "not good enough" and it's "a long tough journey" to recover from the recession that officially ended more than three years ago.
Despite the bad report, stock prices rose, most likely on expectations the Fed will act next week. The Dow Jones industrial average rose 14.64 points to 13,306.64. The Standard & Poor's 500 rose 5.80 to 1,437.92.
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 that gain down by 22,000 on Friday.
The August jobs report looks even uglier upon closer inspection. The unemployment rate fell largely because 368,000 Americans dropped out of the labor force. The government counts people without jobs as "unemployed" only if they are actively looking for work.
The percentage of adult Americans either working or seeking work fell from 63.7 percent in July to 63.5 percent in August. That was the lowest percentage in 31 years. The percentage has been falling steadily since peaking at 67.3 percent in 2000.
"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.