Job growth grinds to halt

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, sending prices for U.S. stocks and oil tumbling. Money fled into safe haven investments and U.S. government debt prices and gold soared. Bond traders bet the dismal data will compel the Fed to try to lower long-term interest rates to boost the economy.

Economists, however, said the data fell short of providing a recession signal, in part because employment was weighed down by 45,000 striking workers at Verizon Communications.

The economy is struggling against stiff headwinds, which appear to have intensified in recent months, said Millan Mulraine, senior macro strategist at TD Securities in New York. While it has clearly not fallen off the cliff, there is little to suggest it is anywhere close to regaining its momentum.

It was the weakest reading on jobs in nearly a year and far below the 75,000 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, and White House advisers said the jobs data underscored a need for action.

He will be very specific about what we can do that can have a meaningful impact on job growth in the economy right away, Gene Sperling, a top economic adviser to Obama, told Reuters Insider.

EYES ON THE FED

The data could strengthen the hand of officials at the U.S. central bank who wanted to do more to help the sputtering economy in August. 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. Many analysts say its arsenal is now largely depleted.

Despite simmering underlying inflation pressures, most economists expect the U.S. central bank to launch a third round of government bond buying to put downward pressure on longer-term interest rates, partly because the federal government appears intent on belt-tightening.

Even the inflation hawks have to be concerned by this report, said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. With fiscal policy at all levels of government restraining growth, the Fed is the only game in town.

While employment was held back by the Verizon strike, the impact was offset somewhat as 23,000 public employees in Minnesota returned to work after a partial government shutdown.

Without the strike, private payrolls would have increased by 62,000 in August, instead of a paltry 17,000.

Still, the overall tenor of the report was decidedly weak.

DODGING RECESSION?

The average workweek dropped to 34.2 hours, the fewest hours since January, and average hourly earnings fell three cents.

The economy needs to generate about 150,000 jobs each month just to keep the unemployment rate steady over time.

A worsening debt crisis in Europe and an acrimonious political fight over U.S. debt, which culminated in the downgrade of the country's AAA credit rating by Standard & Poor's, ignited a massive stock market sell-off last month and sent business and consumer confidence tumbling.

The extreme uncertainty over the outcome of the debt-ceiling debate probably did extra damage to the August (job) figures, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Although hiring cooled, fairly steady readings on claims for jobless benefits, relatively strong consumer spending, continued demand for manufactured goods and increases in industrial production offer hope the economy will avoid recession.

Still, analysts warn the recovery 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.

Government employment fell 17,000 in August, the tenth straight monthly drop, despite the return of the 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.

(Editing by Neil Stempleman)