Job growth stalls, fuels recession fears (Reuters)

WASHINGTON (Reuters) – Employment growth ground to a halt in August, reviving recession fears and piling pressure on both President Barack Obama and the Federal Reserve to provide more stimulus to aid the frail economy.

For the first time in nearly a year the economy failed to create new jobs on a net basis according to the Labor Department's monthly nonfarm payrolls survey on Friday.

Economists had expected nonfarm employment to rise 75,000 last month but they cautioned against viewing the data as a surefire sign of recession.

A worsening debt crisis in Europe and an acrimonious political fight over the government budget and debt, which led Standard & Poor's to strip the country of its AAA credit rating, ignited a massive stock market sell-off last month and sent business and consumer confidence tumbling.

"The economy is struggling against stiff headwinds, which appear to have intensified in recent months," said Millan Mulraine, senior macro strategist at TD Securities in New York. "While it has clearly not fallen off the cliff, there is little to suggest it is anywhere close to regaining its momentum."

Investors fled riskier assets on the news, sending stocks tumbling, pushing up the price of gold, and lowering U.S. Treasury bond yields.

Employment was dampened by 45,000 striking workers at Verizon Communications. Those workers have since returned to work and will be counted as on the payroll in September.

But even taking that into account the report was largely bleak. The unemployment rate, however, held at 9.1 percent as a survey of households found both job growth and, for the first time in a year, an expanding labor force.

With the jobless rate stuck above 9.0 percent and confidence collapsing, President Barack Obama faces pressure to come up with ways to spur job creation. The health of the labor market could determine whether he wins re-election next year.

Obama will lay out a new jobs plan in a speech to the nation on Thursday, and White House advisers said the data underscored a need for action.

"He will be very specific about what we can do that can have a meaningful impact on job growth in the economy right away," Gene Sperling, a top economic adviser to Obama, told Reuters Insider.

Obama on Friday withdrew new rules to limit smog pollution that businesses had argued would kill jobs and cost them billions of dollars.

The Republican speaker of the House of Representatives, John Boehner, said in a statement it was time for political cooperation "to end the uncertainty facing families and small businesses, and create a better environment for long-term economic growth."

But speaking later to reporters in Ohio, Boehner struck a combative tone toward the White House and Senate Democrats. "They want to push for the same kind of agenda -- more stimulus spending and short-term gimmicks, higher taxes, more regulations. We've seen more of this before and it has failed."

EYES ON THE FED

Despite massive cash injections by both the government and the Fed, sustainable job growth has eluded the economy.

"The entire recovery has been a recovery in name only. The Achilles heel ... has always been the lack of job creation," said John Ryding, chief economist at RDQ Economics in New York.

The data could strengthen the hand of officials at the Fed who wanted to do more to help the sputtering economy in August. The economy needs to generate about 150,000 jobs each month just to keep the unemployment rate steady over time.

The central bank, which meets on September 20-21, cut overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in securities to inject cash into the economy.

Despite simmering inflation pressures, many economists expect the Fed to launch a third round of bond buying soon to put downward pressure on long-term rates, partly because the federal government appears intent on belt-tightening.

"Even the inflation hawks have to be concerned by this report," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "With fiscal policy at all levels of government restraining growth, the Fed is the only game in town."

Expectations of further Fed action drove the yield on the benchmark 10-year Treasury note below 2.0 percent. The U.S. dollar rose on safe-haven flows, while the S&P 500 stock index fell 2.53 percent.

UNDERLYING PACE OF JOB GROWTH WEAK

While employment was held back by the Verizon strike, the impact was offset somewhat by the return of 23,000 public employees in Minnesota after a partial government shutdown.

Stripping out both of those factors, employment would have expanded by more than 20,000 jobs last month and, without the strike, private payrolls would have increased by 62,000, instead of a paltry 17,000.

Still, the overall tenor of the report was decidedly weak.

Employers created a combined 58,000 fewer jobs in June and July than previously thought, and the length of the average workweek fell 0.1 hour to 34.2 hours, the fewest since January. In addition, average hourly earnings dropped three cents.

About 43 percent of the 14 million Americans unemployed in August had been out of work for at least six months. The jobless rate would have been 16.2 percent if people who want to work but have given up looking for jobs and those working only part time for economic reasons were counted.

Although hiring cooled, fairly steady readings on claims for jobless benefits, relatively strong consumer spending and continued demand for manufactured goods offer hope the economy will avoid recession.

Analysts say the economy should pick up steam from here, although they warn the recovery is so weak that any fresh shock could send it tumbling. In the first half of the year, the economy expanded at less than a 1.0 percent annual rate.

(Editing by Neil Stempleman and Tim Ahmann)

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Jobs growth stalls, setting back recovery hopes (Reuters)

WASHINGTON (Reuters) – U.S. jobs growth ground to a near halt in June as employers hired the fewest workers in nine months, frustrating hopes the economy would bounce back quickly from a slowdown in the first half of the year.

Nonfarm payrolls rose only 18,000, the Labor Department said on Friday. It was the weakest reading since September and below even the most dire forecast in a Reuters poll of economists.

The dismal report, which showed the unemployment rate climbing to a six-month high of 9.2 percent, stood in stark contrast with recent data on manufacturing and retail sales that had shown activity starting to perk up.

"This report has dashed hopes that the economy was about to accelerate again," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "It is showing a much bleaker picture than other indicators and we must hope that it is overstating the extent of the slowdown."

Stocks on Wall Street tumbled on the dour report, while Treasury debt prices rallied on the view the Federal Reserve would keep overnight interest rates near zero well into next year. The dollar rose against a broad basket of currencies as investors turned risk averse.

Contributing to the weak tenor of the report, the department said the economy created 44,000 fewer jobs in April and May than previously thought.

Government was the biggest drag in June, but the weakness was widespread and could pressure the Fed to consider further action to help the economy. Officials, however, have set a high bar after completing a $600 billion bond-buying program last week.

Still, economists are holding on to their belief that the economy will soon pull away from its first-half soft patch and do not see new recession on the horizon.

"You have to look at the more recent data and they have been much more positive. We haven't seen the economy faltering further, instead we have seen the economy coming back," said Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania.

Motor vehicle manufacturers are ramping up production as the shortage of parts from Japan eases and retailers reported better-than-expected sales in June.

DEBT CEILING IMPASSE HURTING

The employment data dealt a blow to the Obama administration, which has struggled to get the economy to absorb the 14.1 million unemployed Americans. So far, the economy has regained only a fraction of the more than 8 million jobs lost during the recession.

It could also stiffen the resolve of Democrats to push for near-term stimulus as they seek a deal with Republicans to cut the U.S. budget deficit.

The economy is the top concern among voters and will feature prominently in President Barack Obama's bid for re-election next year.

In an appearance at the White House, Obama said an impasse in budget negotiations that is blocking a needed increase in the nation's debt limit had contributed to the reluctance by businesses to hire.

"The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised," he said.

Republicans pointed the blame at Democrats.

"Today's report is more evidence that the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country," House of Representatives Speaker John Boehner said in a statement.

The economy needs to create between 125,000 and 150,000 new jobs a month just to absorb new labor force entrants.

The private sector added 57,000 jobs last month, while government employment shrank 39,000 -- the eighth straight monthly decline -- as local and state governments continued to wield a budget ax.

Factory payrolls rebounded 6,000 after contracting in May for the first time in seven months, reflecting a step-up in motor vehicle production. Construction employment fell 9,000 last month after declining 4,000 in May

The length of the average workweek fell to 34.3 hours from 34.4 hours. Employers have been reluctant to extend hours because of the uncertainty surrounding the recovery and the decline suggested they were facing little pressure to increase hiring soon.

Average hourly earnings slipped a penny, the first decline since November and more evidence that wage-driven inflation is not a risk. Over the past year, earnings have risen only 1.9 percent.

(Editing by Andrea Ricci)

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Unemployment rose to 9.2 percent as hiring stalls (AP)

By CHRISTOPHER S. RUGABER, AP Economics Writer Christopher S. Rugaber, Ap Economics Writer – 41?mins?ago

WASHINGTON – Hiring slowed to a near-standstill last month, raising doubts that the economy will rebound in the second half of the year after a spring slump.

The economy generated only 18,000 net jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest rate of the year, the Labor Department said Friday.

Stocks plunged after the report was released. The Dow Jones industrial average fell more than 120 points in midday trading. Broader indexes also declined.

"June's employment report doesn't have a single redeeming feature," said Paul Ashworth, an economist at Capital Economics. "It's awful from start to finish."

Two years after the recession officially ended, companies are adding fewer workers despite record cash stockpiles and healthy profit margins.

Businesses added just 57,000 jobs last month_ the fewest in more than a year. Governments cut 39,000 jobs. Over the past eight months, federal, state and local governments have cut a combined 238,000 positions.

It was the second straight month of feeble job growth. The number of jobs added in May was downwardly revised to 25,000.

Companies have pulled back on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up with population growth. And at least twice that many jobs are needed to bring down the unemployment rate.

"Our economy as a whole just isn't producing nearly enough jobs for everybody who is looking," said President Barack Obama, during a speech in the Rose Garden.

Obama used the dismal job data to press Congress to raise the government's borrowing limit. He also said Congress could help the economy by passing three free trade agreements, approving government projects that would create jobs for construction workers, and extending a payroll tax cut.

But Republicans have said they will not support an increase in the $14.3 trillion borrowing limit without an equal cut in spending. They also oppose raising taxes as part of any deal. If the limit isn't raised by Aug. 2, the nation will default on its debts, the Treasury Department says.

"These numbers serve as a warning that as we address the debt limit increase we shouldn't do so in a way that raises taxes and impedes the ability of small businesses to create jobs," said House Majority Leader Eric Cantor, a Republican from Virginia.

Economists have said that temporary factors, in part, have forced some employers to scale back hiring plans. High gas prices have cut into consumer spending, which fuels 70 percent of economic activity. And supply-chain disruptions stemming from the Japan crisis have slowed U.S. manufacturing production.

In June, hiring was weak in most sectors: Manufacturers added only 6,000 jobs; Education and health care, which added jobs through the recession, was flat; and professional and business services, which include accounting, legal and engineering jobs, grew by only 12,000.

Construction and financial services cut jobs.

The sluggish economy and anemic hiring is causing more people to simply give up looking for work. More than a quarter-million people stopped their job searches in June. That kept the unemployment rate from rising even further. When laid-off workers stop looking for work, they are no longer counted as unemployed.

Including discouraged workers and those working part time, but who would prefer full-time work, the "under-employment" rate jumped from 15.8 percent to 16.2 percent.

Unemployment has topped 8 percent for 29 months, the longest streak since the 1930s. It has never been so high so long after a recession ended. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.

And those who do have jobs are earning less. Average hourly wages declined last month. After-tax incomes, adjusted for inflation, have been flat this year.

The average work week declined to 34.3 hours, from 34.4, which means employers demanded less work from their existing staffs. Usually companies demand more hours from their existing staffs when they are preparing to hire more workers.

Temporary employment fell 12,000. Businesses generally hire more temporary workers before taking on permanent ones.

The number of unemployed workers rose almost 175,000 to 14.1 million, pushing up the unemployment rate.

There are signs that economy could improve in the second half of the year. Gas prices have come down since peaking in early May at a national average of nearly $4 per gallon. Prices averaged $3.59 a gallon nationwide on Friday, according to AAA.

And manufacturing activity expanded in June at a faster pace than the previous month, according to the Institute for Supply Management. That suggests the parts shortage caused by the March 11 earthquake in Japan is beginning to abate.

More jobs are needed to boost incomes and consumer spending, which fuels 70 percent of the economy. Without more hiring, the economy may not be able to accelerate from its current weak pace of growth.

The government said last month that the economy grew only 1.9 percent in the January-March quarter. Analysts are expecting similarly weak growth in April-June quarter.

The economy is expected to grow at a 3.2 percent pace in final six months of the year, according to an Associated Press survey of 38 economists. But the latest report could prompt some economists to revise their forecasts.

Growth must be stronger to significantly lower the unemployment rate. The economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate. Economic growth of just 3 percent a year would hold the unemployment steady and keep up with population growth.

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