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Miss in U.S. Payrolls Spurs Talk of New Fed Stimulus

Photographer: John Moore/Getty Images

Job seekers attend a career fair in Midtown Manhattan, New York City. Close

Job seekers attend a career fair in Midtown Manhattan, New York City.

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Photographer: John Moore/Getty Images

Job seekers attend a career fair in Midtown Manhattan, New York City.

Payrolls rose less than projected in August and the unemployment rate was unexpectedly driven down by Americans leaving the labor force, boosting the odds of additional Federal Reserve easing to spur a faltering recovery.

The economy added 96,000 workers after a revised 141,000 increase in July that was smaller than initially estimated, Labor Department figures showed today in Washington. The median estimate of 92 economists surveyed by Bloomberg called for a gain of 130,000. The jobless rate fell to 8.1 percent.

Treasuries and gold rose on bets the figures make it more likely Fed policy makers will expand record monetary stimulus next week after Chairman Ben S. Bernanke called unemployment a “grave concern.” The report dealt a blow to President Barack Obama one day after he accepted the Democratic Party’s nomination for a second term.

“This is definitely a setback for the labor market and the economy,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and former economist for the Fed. “This clearly validates Bernanke’s concern. We have Europe, the fiscal cliff, and it is a generally cautious business environment.”

The yield on the 10-year Treasury note, which moves inversely to price, fell one basis point to 1.67 percent. Gold futures for December delivery climbed 2 percent to $1,740.50 an ounce, a six-month high. The Standard & Poor’s 500 Index advanced 0.4 percent to 1,437.92 at the close of trading in New York, its highest level since January 2008.

Fiscal Cliff

Employers may be reluctant to expand headcounts as they face a global economic slowdown and the so-called fiscal cliff, the $600 billion of tax increases and spending cuts that will take effect automatically at the end of the year unless Congress acts.

Some companies are planning to reduce staff. Mountain View, California-based Google Inc. (GOOG) said on Aug. 13 it will cut about 4,000 positions at its Motorola Mobility Holdings Inc. unit, with about one-third of the reductions coming in the U.S. Printer maker Lexmark International Inc. (LXK) on Aug. 28 announced plans to eliminate 1,700 jobs globally.

For Kimberly Hackler of White, Georgia, the job search has been “frustrating at best, a little disheartening.” The 49- year-old has been looking for work since November, applying for about 190 positions.

‘Stable Employment’

“I’m very concerned about those of us who are unemployed and where are we going to find stable employment,” Hackler said. “I don’t see the economy improving anytime soon. I am concerned it could get worse.”

The Fed’s Bernanke, in an Aug. 31 speech in Jackson Hole, Wyoming, defended his unorthodox policies and laid out arguments for further easing, including additional large-scale asset purchases, known as quantitative easing.

Policy makers will give “strong hints” or provide “positive action” at the Sept. 12-13 Federal Open Market Committee meeting, said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co.

The Fed will likely ease further through “open-ended” purchases of Treasuries and mortgages and extend its pledge to keep interest rates low into 2015, Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

With an open-ended program, the central bank would announce a monthly amount of bond purchases that would continue until the economy’s performance meets its objectives.

Party Convention

Today’s report was a setback for Obama’s hopes of gaining momentum coming out of his party’s convention and gave Republican candidate Mitt Romney another campaign weapon.

“There’s almost nothing the president has done in the last three and a half, four years that gives the American people confidence he knows what he’s doing when it comes to jobs and the economy,” Romney told reporters in Sioux City, Iowa, where his campaign plane landed.

Obama made only a passing mention of the jobs figures at his first post-convention campaign event in Portsmouth, New Hampshire.

“We know it’s not good enough,” Obama said. “We need to create more jobs, faster.”

Bloomberg survey estimates ranged from increases of 70,000 to 185,000. Revisions to prior reports subtracted a total of 41,000 jobs from payrolls in the previous two months.

Factory Employment

Factory employment fell by the most in two years, temporary-help companies eliminated positions for the first time in five months, and the share of the working-age population in the labor force slumped to the lowest since 1981.

Private payrolls, which exclude government agencies, rose 103,000 after a revised gain of 162,000. They were projected to rise by 142,000, the survey showed.

American Axle & Manufacturing Holdings Inc. (AXL), a maker of axles and crankshafts, is among companies looking to expand as the auto industry rebounds. The Detroit-based company plans to hire 400 to 500 workers at its Three Rivers, Michigan, factory over the next two years, David Tworek, a spokesman, said in an e-mail last month.

The jobless rate fell from 8.3 percent as 368,000 Americans left the labor force. Unemployment was forecast to hold at 8.3 percent, according to the survey median. Estimates in the Bloomberg survey ranged from 8.1 percent to 8.4 percent.

Factory payrolls decreased by 15,000, compared with a survey forecast for a 10,000 increase, after a 23,000 gain in the previous month. Automakers cut 7,500 jobs last month.

Fewer Shutdowns

The figures reflected the reversal of a July increase that was propelled by fewer shutdowns at automakers for annual retooling related to the new model year. Still, carmakers may continue to add workers. Chrysler Group LLC, Ford Motor Co., General Motors Co. (GM), Toyota Motor Corp. and Honda Motor Co. reported U.S. auto sales in August that rose more than analysts estimated as new models attracted buyers.

Employment at service-providers increased 119,000. Construction companies added 1,000 workers and retailers took on 6,100 employees. Government payrolls decreased by 7,000. The number of temporary workers decreased almost 5,000.

Average hourly earnings were little changed, and up 1.7 percent from August 2011, today’s report showed. The 12-month change matched the smallest gain since record-keeping began in 2007.

The participation rate, which indicates the share of working-age people in the labor force, fell to 63.5 percent, the lowest since September 1981, from 63.7 percent.

Sounding Alarms

Companies from Intel Corp. to FedEx Corp. are sounding alarms on the outlook for the world’s largest economy as global growth cools.

Intel, the world’s largest semiconductor maker, today slashed its third-quarter sales prediction amid declining demand for personal computers from corporate customers. FedEx this week projected its first decline in quarterly earnings in almost three years as slowing growth hurt demand for the express packages that provide most of its sales.

Payroll gains slowed from an average 226,000 in the first quarter to 73,000 in the April to June period, before picking up in July. The U.S. has managed to recover 4.1 million of the 8.8 million jobs lost as a result of the 18-month recession that ended in June 2009.

The unemployment rate, derived from a separate Labor Department survey of households, has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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