* What: U.S. employment report for August
* Non-farm payrolls seen falling by 225,000
* Unemployment rate forecast to rise to 9.5 percent
* When: Friday, Sept. 4 at 8:30 a.m. (1230 GMT)
By Lucia Mutikani
WASHINGTON, Sept 1 (Reuters) - U.S. employers in August likely cut jobs by the least amount in a year, a sign of healing in the labor market as the economy starts to claw out of the worst recession in 70 years, according to a Reuters survey.
Analysts said much of the slowdown in the pace of layoffs was due to a rebound in manufacturing, with automakers increasing output to meet a surge in demand, triggered by the “cash-for-clunkers” program.
The unemployment rate was forecast to have inched up in August after dipping slightly the previous month, as the economy’s improving prospects lured discouraged job seekers back into the labor market.
The survey of 81 economists forecast employers cut 225,000 jobs in August, which would be the least amount for any month since August 2008, after laying off 247,000 workers in July. They saw the unemployment rate edging up to 9.5 percent from 9.4 percent, which was the first dip since April 2008.
The Labor Department will release the August employment report on Friday at 8:30 a.m. (1230 GMT).
“Job losses are tapering off, you are hearing less announcements of layoffs by large companies. The auto industry is producing more cars and the trend that started in July will be carried over into August,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
The government’s “cash-for-clunkers” program, which gave drivers a discount to trade in old gas guzzlers for fuel efficient vehicles, unleashed a surge in demand for autos, prompting General Motors, among others, to raise production.
The No. 1 U.S. carmaker said last month it would bring back about 1,350 hourly workers in the U.S. and Canada to assembly plants. Analysts said the incentive, which ended last week, had helped to stabilize employment in manufacturing.
They expected companies, who they said probably overreacted to the slump in demand by aggressively axing jobs, to start hiring new workers as they rebuild inventories that have been reduced to record low levels.
“We believe that firms cut their staffing levels to the bone early in 2009 and will be forced to rehire quickly as activity begins to rise,” said Stephen Stanley, chief economist at RBS in Greenwich, Connecticut.
“Already, there have been scattered anecdotes that companies are bringing laid-off workers back, most prominently in the auto industry and we look for these stories to become increasingly frequent going forward.”
The Institute for Supply Management survey for August, released on Tuesday, showed manufacturing employment still contracting, but the index was at its highest in a year.
Labor market stability is crucial for the economy’s recovery from a devastating recession that started in December 2007. While data continue to suggest a recovery is underway, high unemployment is casting doubts over its sustainability.
Unemployment is putting pressure on household incomes, restraining their capacity to spend. Consumer spending accounts for about 70 percent of U.S. economic activity.
Analysts reckon payrolls should start to grow late this year or in early 2010.
“It’s absolutely necessary, otherwise this will end up being a false start,” said PNC Financial Services’ Hoffman.
“If not late this year, but early next year we will actually start to see some increases in payrolls. That will help to reinforce, what is still going to be a weak, but sustained recovery in the U.S. and probably global as well.”
Even with the economy expected to return to growth in the second half of this year and the pace of job losses to slow down significantly, unemployment was expected to rise to as high as 10 percent by December.
August’s employment report also will be scrutinized for signs of improvement in the average workweek and hourly earnings. The average workweek closely correlates with overall output and could shed light on when firms will start hiring.
The average workweek is expected to be unchanged at 33.1 hours in August, after gaining slightly in July. Average hourly earnings were expected to rise for a second straight month in August, reflecting the government minimum wage increase.
“The workweek typically begins to rise as payroll losses moderate coming out of a recession, but back-to-back gains are unusual unless gross domestic product growth is strong,” said Abiel Reinhart, an economist at JP Morgan in New York. (Reporting by Lucia Mutikani; Editing by Neil Stempleman)