WASHINGTON — Another subpar month of hiring reported by the government Friday puts more pressure on the Federal Reserve to take additional unconventional steps to jump-start a sluggish economic recovery, experts said.
Dashing expectations for a strong jobs report in August, the Labor Department said Friday that employers had added a lower-than-expected 96,000 posts last month.
The unemployment rate fell to 8.1 percent from 8.3 percent in July, in part because the labor force shrank and the labor force participation rate fell to 63.5 percent, the lowest level since 1981.
The unemployment rate is down 2 percentage points from the Great Recession high of 10.1 percent and is now where it stood in February 2009, President Barack Obama’s first full month in office. The labor force participation rate stood at 65.6 percent back then but was falling.
Obama, at a campaign stop Friday in New Hampshire, said businesses had added jobs for the 30th month in a row.
“But that’s not good enough. We know it’s not good enough,” the president said. “We need to fill the hole left by this recession faster. There’s a lot more we can do.” He urged Congress to pass the middle-class tax cut he’s proposed.
Economists had expected August job growth in the range of 125,000 to 140,000, and many had predicted even more after other gauges of employment this week pointed to strong hiring. It proved to be false optimism, with just 103,000 private-sector jobs added, according to the Labor Department. An additional 7,000 lost government jobs brought the overall August number down to 96,000, well below the 150,000 additional jobs needed each month just to keep pace with new entrants into the workforce.
Government statisticians also revised down the June and July jobs reports by a combined 41,000 posts.
Several months of continued sluggish hiring puts pressure on Fed Chairman Ben Bernanke, whose mandate includes creating the economic conditions that encourage full employment. He signaled in late August at the Fed’s annual retreat in Jackson Hole, Wyo., that he’s ready to do more to support growth.
“Given Bernanke’s speech last week, the Fed is likely to either launch a third round of QE (quantitative easing) or extend its commitment to zero rates into 2015. However, in our view this will do little, if anything, to boost growth,” economists at RDQ Economics wrote in a research note.
Quantitative easing involves purchasing government bonds and mortgage bonds to knock down the rates of return and force investors into more risk taking that encourages economic activity. The Fed has deployed the unconventional step because its benchmark lending rate, which influences lending rates across the economy, has been at a range of zero to 0.25 percent since December 2008. The Fed can’t go any lower, so it’s trying to approximate the effects of below-zero interest rates.
The Fed’s balance sheet has swelled to nearly $3 trillion amid two previous efforts to spark economic activity. In his speech, Bernanke defended his moves as successful, but some economists and politicians argue there are now diminishing returns and that future bond buying won’t be effective and could spark inflation.
“There is no substitute for fiscal policy. You can’t have central banks bail us out all the time,” Wisconsin Republican Rep. Paul Ryan, the GOP’s vice-presidential nominee, said Friday on the business cable channel CNBC.
The rate-setting Federal Open Market Committee will meet Wednesday and Thursday, and at minimum the Fed is expected to change the wording in its statements to reflect that it will keep its benchmark rate near zero through the end of 2015, an additional year.
“A disappointing jobs report. Job growth fell short of expectations and the labor force declined. Businesses remain very cautious and reluctant to hire. Until hiring picks up, the job market and broader economy won’t improve substantially,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics. “Most of the miss on jobs last month was in auto-related manufacturing. This is at odds with improving vehicle sales and thus should turn around this fall.”
Manufacturing had been a rare bright spot, but as the global economy slows it’s hit U.S. exports of manufactured goods. Manufacturers shed 15,000 jobs in August.
“Slowing global sales and uncertainties about the domestic economy have taken a toll, with manufacturers on edge and activity slowing to a standstill,” wrote Chad Moutray, the chief economist for the National Association of Manufacturers. “With that in mind, the drop in manufacturing employment was not surprising, even as it is such a disappointment.”
Aside from the jobs lost in manufacturing, government and temporary employment, all other sectors added jobs in August, though none with robust hiring.
Mainstream economists had expected much more from Friday’s numbers, partly because the ADP National Employment Report, a private measure of hiring activity in the private sector, reported Thursday that 201,000 jobs had been created in August.
Other factors also are weighing against growth and hiring in the final two jobs reports before the Nov. 6 election.
“I don’t expect the job market to gain any traction until after the election and the next president and Congress nail down what to do about the fiscal cliff and raise the Treasury debt ceiling,” Zandi said, referring to looming tax hikes and steep cuts to government spending at year’s end if warring politicians can’t forge a compromise on taxes and spending.
The weak job numbers carried enormous political ramifications.
Obama seemed to foreshadow the weak report during his speech Thursday night closing out the Democratic National Convention in Charlotte, N.C., telling Americans that more time was needed to recover from the deep financial mess he’d inherited. White House spokesman Jay Carney wouldn’t say Friday whether Obama had seen the jobs report before his speech.
The man who wants the presidency, Republican former Massachusetts Gov. Mitt Romney, fired off a harsh statement minutes after the jobs report came out.
“If last night was the party, this morning is the hangover. For every net new job created, nearly four Americans gave up looking for work entirely,” Romney said, hinting at the declining labor force participation rate. “This is more of the same for middle-class families, who are suffering through the worst economic recovery since the Great Depression.”
House Speaker John Boehner, R-Ohio, added in a statement that the jobs report “underscores President Obama’s failed promises to get our economy moving again. The unemployment rate has been higher than 8 percent for 43 consecutive months.”
It fell to the chief of White House Council of Economic Advisers, Alan Krueger, to put a happy face on a jobs report that fell short of expectations.
“The economy has now added private-sector jobs for 30 straight months, for a total of 4.6 million jobs during that period,” Krueger said in a statement.
Lesley Clark contributed to this article.
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