Jobs growth seen lackluster in August, Fed action eyed

WASHINGTON Tue Sep 4, 2012 6:21pm EDT

WASHINGTON (Reuters) - Jobs growth likely cooled in August with the elevated unemployment rate remaining stuck as businesses worried over an uncertain economic outlook, an outcome that could potentially seal the case for a further easing of monetary policy.

Employers are expected to have increased payrolls by 125,000 workers last month, according to a Reuters survey of economists, a step down from July's 163,000-job gain. The unemployment rate is seen holding steady at 8.3 percent.

The fresh U.S. jobs tally will be released on Friday at 8:30 a.m. (1230 GMT), a week after Federal Reserve Chairman Ben Bernanke left the door wide open to more monetary stimulus and described the labor market's stagnation as a "grave concern."

Bernanke's comments raised expectations among economists that the U.S. central bank would decide to pump more money into the sluggish economy at its September 12-13 meeting through a third round of bond purchases.

"The report would probably have to be very strong to dissuade the Fed from acting, with payrolls coming in well north of 150,000 and the unemployment rate dipping," said Jeremy Lawson, a senior economist at BNP Paribas in New York.

"And even then policymakers could take the view that healthy employment growth is unlikely given the current outlook for (economic) growth."

While the economy has experienced three years of growth since the 2007-09 recession, the expansion has not been vigorous and the jobless rate has held above 8 percent for more than three years -- the longest stretch since the Great Depression.

The economy grew at an average annual pace of 1.8 percent over the first half of 2012. A sustained growth rate of about 2.5 percent or higher for several quarters would be required to significantly reduce unemployment.

The unemployment rate peaked at 10 percent in October 2009, but progress reducing it stalled this year, which could spell trouble for President Barack Obama when Americans go to the polls in November.

Obama and his Republican challenger Mitt Romney are in a dead heat in the race for the White House, according to a Reuters/Ipsos poll published on Sunday.

"You are not going to get a strong enough payroll clip to meaningfully move the unemployment rate," said Brian Levitt, an economist at OppenheimerFunds in New York. "You would need to have far greater than 100,000 jobs to have a meaningful impact."

FISCAL CLIFF, EUROPE BLAMED

Hiring has cooled significantly to an average of 105,000 per month over the last three months from 226,000 in the January-March period. Economists blame fears of the so-called U.S. fiscal cliff -- the $500 billion or so in expiring tax cuts and government spending reductions scheduled to take hold at the start of next year -- and Europe's long-running debt problems.

Harm Bandholz, chief U.S. economist at UniCredit Research in New York, said those factors have led businesses to postpone investment decisions and were likely weighing on hiring as well.

"Companies are delaying all that stuff given the uncertainty about the fiscal cliff and the global economy. They don't want to add too much to their books, neither capital nor workers," he said.

First-time applications for jobless benefits were mostly elevated in August and a gauge of factory employment fell to its lowest level since November 2009, signs the labor market continues to struggle.

Economists expect manufacturing payrolls to show only a modest gain in August, arguing that factory jobs in July were inflated because automobile manufacturers kept plants running when they would normally shut them for retooling.

Little improvement is expected in construction employment, where homebuilders have been breaking ground on new projects at a slightly faster clip this year.

Elsewhere, a slowdown in temporary hiring in July could have translated into softer professional and business services hiring in August. But utilities payrolls should see a snap back after being depressed by the strike of about 9,000 workers in July.

Government payrolls are a wild card. Economists at JPMorgan predict education employment will show a softer increase in August after rising 18,000 in July. They viewed the increase in July as payback from a weak June number and expect government payrolls contracted 10,000 last month.

But Moody's Analytics believes government employment rose by 5,000 in August, which would be only the third monthly gain since 2011. They noted both that government payrolls tend to rise in August and that there were five weeks between the July and August employment report survey periods, which could introduce an upward bias.

Average hourly earnings are expected to have risen 0.2 percent last month after a 0.1 percent gain in July. The average work week is seen steady at 34.5 hours. The average work week has hovered around 34.5 hours this year and hours in most industries are back to pre-recession levels.

(Reporting by Lucia Mutikani; Editing by Tim Ahmann and Chizu Nomiyama)

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