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Hiring slows in August, putting pressure on Fed

By Paul Wiseman

Associated Press

Published: Friday, Sept. 7 2012 11:59 p.m. MDT

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.

Kayla Middleton, 26, was one of about 70 teachers furloughed this year by the Reading School District. Middleton says because she has such little seniority "I knew there was no way I was escaping."

The job creation and unemployment numbers come from separate surveys. One asks mostly large companies and government agencies how many people they employed during the month. This survey produces the number of jobs gained or lost.

The other is the household survey. Government workers ask whether the adults in a household have a job. Those who don't are asked whether they're looking for one. If they are, they're considered unemployed. If they aren't, they're not considered in the workforce and aren't counted as unemployed. The household survey produces each month's unemployment rate.

The downbeat jobs news convinced many economists that the Fed will come to the rescue. At its last meeting, the Fed's policy committee decided that action "would likely be warranted fairly soon" unless it saw evidence of "a substantial and sustainable strengthening" of the economy. Many economists expect the Fed to announce a third round of bond purchases at its Sept. 12-13 meeting. The goal would be to drive down long-term interest rates to stimulate borrowing and spending.

Anthony Chan, chief economist at Chase Wealth Management, said further Fed action would likely send stock prices up, making consumers feel wealthier and more willing to spend.

As bad as things are, they could get worse.

Europe is in or close to a full-blown recession, which could dent the exports that have been one of the U.S. economy's few sources of strength. And a debt crisis threatens to force several European countries to stop using the euro currency. The breakup of the 17-country eurozone could cause a global financial panic as countries replaced solid euros with local currencies of dubious value.

Political bickering in Washington could plunge the U.S. economy back into recession if Democrats and Republicans can't reach a budget deal by the end of the year. Under rules designed to force a compromise, failure to reach agreement would trigger $600 billion worth of spending cuts and tax hikes starting next year. The draconian moves would send the economy over a so-called fiscal cliff and probably into recession.

Still, Sherry Cooper, chief economist at BMO Financial Group, saw reasons for optimism. Europe could be rescued by the European Central Bank, she says.

On Thursday, ECB President Mario Draghi unveiled an ambitious plan to buy unlimited amounts of European government bonds to help lower borrowing costs for countries straining to manage their debts.

Cooper also noted that "the U.S. housing market is finally on the upswing."

Pinnacle Homes, a construction-management company in Las Vegas, shrank from 20 employees to seven after the housing market collapsed five years ago. Company president Frank Wyatt says business is slowly picking up, but "we're not ready to add anybody yet."

For now, the American economy remains sluggish, and 12.5 million Americans are locked out of jobs. Megan Baker, 23, of Warrenton, Va., has "been applying to jobs almost nonstop" since she graduated from college last year. She hasn't landed one yet. Usually, she doesn't even hear back.

"I have applied to so many jobs that I've lost track," she says. "I try to tailor my resume and cover letters to each job, but now I am just becoming discouraged and want to give up."

Associated Press Writers Martin Crutsinger in Washington and Peter Jackson in Harrisburg, Pa., contributed to this story.

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