U.S. employment likely fell for a third straight month in August as more temporary census jobs ended and cautious businesses scaled back hiring, an outcome that could pressure the Federal Reserve to prop up growth.

Nonfarm payrolls fell 100,000 after declining 131,000 in July, according to a Reuters survey. Private payrolls, a better barometer of the labor market's underlying health, are seen rising only 41,000, well below the 71,000 jobs added in July.

The Labor Department will release the closely watched employment report for August at 8:30 a.m. EDT.

Against the backdrop of weak data such as housing, larger-than-expected job losses last month could heighten fears the economy is sliding back into recession and push the Fed -- the U.S. central bank -- closer to launching a fresh round of bond buying.

A downbeat report would also further dim chances Democrats would hold their majorities in the U.S. Senate and House of Representatives in mid-term elections in November.

Concerns of a double-dip recession have diminished somewhat this week as data showed strength in manufacturing and gains in consumer spending but the sluggish pace of growth has kept investors on edge.

The bar is set fairly low for Friday's employment report, but if we get a much larger decline, with weakness particularly evident in private employment, that would raise the odds of a double-dip recession, said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania.

Despite the expected sharp drop in employment, the jobless rate probably only rose a touch to 9.6 percent from 9.5 percent in July. This is mainly the result of a shrinking labor force as discouraged workers give up the search for jobs.

According to government data, temporary employment for the decennial census fell about 116,391 between the July and August survey periods for the employment report.

While the unwinding of temporary census jobs has been a major drag on payrolls, an uncertain economic outlook has also caused businesses to pare hiring.

CONSUMER SPENDING HURT

Jobs scarcity is hurting consumer spending, which normally accounts for about two-thirds of U.S. economic activity, leaving the recovery from the worst recession in 70 years sputtering.

Growth slowed markedly in the second quarter and Fed Chairman Ben Bernanke has said the central bank stands ready to take fresh measures to support the economy if needed.

Minutes of the Fed's last policy meeting released this week showed several policymakers felt the outlook would have to deteriorate appreciably to spur fresh monetary support.

The Fed slashed overnight interest rates to near zero in December 2008 and has vowed to keep them ultra-low for an extended period to aid the recovery. In addition, it bought about $1.7 trillion in mortgage-related and government debt in a further effort to lower borrowing costs.

Bernanke said last week that further purchases were a top option if officials felt more economic support was needed.

The economy is in a bit of a lull and gauging how long we are stuck in this rut will determine if the Federal Reserve needs to step in, said Sweet.

The economy's poor health has weakened President Barack Obama's popularity and could see Republicans wrestle control of Congress away from the Democratic Party.

Typically in midterm elections when there is no presidential race the party in power in the White House suffers losses, but analysts say the drubbing Democrats could face may be unusually severe.

The weakness in employment last month was probably spread across all sectors. Employment in the goods-producing sector was likely held back by lackluster manufacturing payrolls, which had received a boost from some automakers who did not shut their plants for the traditional summer break.

While construction employment probably got a lift from the return of 10,000 strikers, the gain was likely neutralized by a downturn in residential construction following the end of a popular homebuyer tax credit.

Employment gains in the dominant service sector were likely muted given tepid spending. However, temporary help services, seen as a harbinger of permanent hiring, probably rebounded after falling in July for the first time since last September.

Analysts believe companies that need to add workers will opt for temporary help given the uncertain outlook and some think the length of the average workweek, which has barely budged this year, could grow longer in a sign employers prefer to add hours for existing workers rather than hire new staff.

However, the median forecast for the average workweek in the Reuters poll is unchanged at 34.2 hours.

(Editing by James Dalgleish)

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