U.S. employment growth ground to a halt in August as sagging confidence discouraged already skittish businesses from hiring, piling pressure on the Federal Reserve to provide more stimulus to aid the economy.
Nonfarm payrolls were unchanged last month, the Labor Department said on Friday, and employers created a combined 58,000 fewer jobs than had been thought in June and July.
The bleak report fueled recession fears. Prices for U.S. stocks and oil tumbled, while U.S. government debt prices rose as traders bet on a further easing of monetary policy.
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"The economy is slowly grinding to a halt," said Steve Blitz, senior economist at ITG in New York.
It was the weakest reading on jobs in nearly a year and far below the 75,000 job gain Wall Street had expected. The unemployment rate, however, held at 9.1 percent as a survey of households found both job growth and an expanding labor force.
With the jobless rate stuck above 9 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.
"This better be one hell of a speech next week," said Sal Arnuk, co-manager of trading at Themis Trading in Chatham, New Jersey.
The data, which pushed the Standard & Poor's 500 stock index down by 2 percent in early trade, could strengthen the hand of officials at the U.S. central bank who were ready at their August meeting to do more to help the sputtering economy. The Fed next meets on September 20-21.
The Fed cut overnight interest rates to near zero in December 2008 and it has bought $2.3 trillion in securities in two bouts of bond buying, known as quantitative easing, or QE. Many analysts say its arsenal is now largely depleted, although expectations grew on Friday of further action.
"The Fed has gained greater political ability to enact a version of QE3 at their meeting in September," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
Employment was held back in part by a strike by about 45,000 Verizon Communications workers, although that was somewhat offset by thousands of public employees in Minnesota who returned to the job after a partial government shutdown.
Still, the overall tenor of the report was decidedly weak. The length of the average workweek dropped to 34.2 hours, the fewest since January, and average hourly earnings fell three cents.
The economy needs to generate 150,000 jobs or so each month just to keep the unemployment rate steady over time.
An acrimonious political fight over U.S. debt, which culminated in the downgrade of the country's AAA credit rating from Standard & Poor's, and a worsening debt crisis in Europe ignited a massive stock market sell-off last month and sent business and consumer confidence tumbling.
Although hiring cooled, there is little sign companies responded to the darkening outlook by laying off workers. First-time applications for state unemployment benefits have hovered around 400,000 for weeks.
The steady jobless claims, relatively strong consumer spending, continued demand for manufactured goods and increases in industrial production offer hope the economy will steer clear of recession.
Analysts warn the economy 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 percent annual rate.
Private payrolls increased only 17,000 in August after rising 156,000 in July.
Government employment fell 17,000, the tenth straight monthly drop. The decline was tempered by the return of 23,000 state workers in Minnesota.
Manufacturing payrolls fell 3,000, reflecting the slump in business confidence. Factories had added 36,000 new workers in July as disruptions to motor vehicle production caused by a shortage of parts from Japan eased.
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