Dow falls 253 points in the wake of alarming jobs report
The economy added zero jobs in August, and the stock market tumbled in response
WASHINGTON (AP) â€” Employers added no jobs in August â€” an alarming setback for the economy that renewed fears of another recession and raised pressure on Washington to end the hiring standstill.
Worries flared Friday after release of the worst jobs report since September 2010. Total payrolls were unchanged, the first time since 1945 that the government reported a net job change of zero. The unemployment rate stayed at 9.1 percent.
The stock market plunged in response. The Dow Jones industrial average fell 253 points, or more than 2 percent, in mid-afternoon trading.
Analysts say the economy cannot continue to expand unless hiring picks up. In the first six months of 2011, growth was measured at an annual rate of 0.7 percent.
Companies are mostly keeping their payrolls intact. They're not laying off many workers, but they're not hiring, either. Without more jobs to fuel consumer spending, economists say another recession would be inevitable. Consumer spending accounts for about 70 percent of economic growth.
Like a wobbling bicycle, "you either reaccelerate or you fall over, said James O'Sullivan, chief economist at MF Global. "Something has to give."
Consumer and business confidence was shaken this summer by the political standoff over the federal debt limit, a downgrade of long-term U.S. debt and the financial crisis in Europe. Tumbling stock prices escalated the worries.
Even before it stalled last month, job growth had been sputtering. The economy added 166,000 jobs a month in the January-March quarter, 97,000 a month in the April-June quarter and just 43,000 a month so far in the July-September period.
"Underlying job growth needs to improve immediately in order to avoid a recession," said HSBC economist Ryan Wang.
So far, the Fed has been reluctant to launch another round of Treasury bond purchases. Its previous bond-buying programs were intended to force down long-term interest rates, encourage borrowing and boost stock prices.
On Thursday, Obama will give a televised speech to a joint session of Congress to introduce a plan for creating jobs and spurring economic growth.
Even for people who do have jobs, income growth is stalled. That will hold back their ability to spend. The only sure way to reduce the risk of recession is with more hiring, economists say.
"The importance of job growth cannot be overstated," said Joshua Shapiro, chief U.S. economist at MFR Inc.
The economy needs to add roughly 250,000 jobs a month to rapidly bring down the unemployment rate. The rate has been above 9 percent in all but two months since May 2009. Roughly 14 million Americans are unemployed.
The weakness was underscored by revisions to the jobs data for June and July. Collectively, those figures were lowered to show 58,000 fewer jobs added than previously thought. The downward revisions were all in government jobs.
The average workweek and hourly earnings also declined in August. Cutbacks by federal, state and local governments have erased 290,000 government jobs this year, including 17,000 in August.
"There is no silver lining in this one," said Steve Blitz, senior economist at ITG Investment Research. "It is difficult to walk away from these numbers without the conclusion that the economy is simply grinding to a halt."
The unemployment rate for black men jumped a full percentage point in August to 18 percent. That's the highest level for that group since March 2010. And unemployment for black people as a whole surged from 15.9 percent to 16.7 percent even as unemployment for white Americans ticked down to 8 percent from 8.1 percent.
Obama has faced doubts within his own party, including black lawmakers who say he hasn't done enough to help chronic unemployment in black communities.
Yet Obama is unlikely to win support for any new stimulus spending from congressional Republicans, who oppose further spending and argue that the president's economic policies have failed. They favor deeper spending cuts and less government regulation.
On Friday, Obama took a step toward winning their support. He directed the Environmental Protection Agency to abandon rules that would have tightened health-based standards for smog. Republicans and some business leaders have said the proposed rules would have cost jobs.
Kurt Karl, chief economist for the Americas at Swiss Re, said the August jobs report "implies a rising probability of recession."
Still, he noted, employment fell for six quarters after the 2001 recession â€” and the economy kept chugging along at an annual rate of 2.1 percent over that time.
The economy's 0.7 percent growth rate in the first half of 2011 was the slowest six months of growth since the recession officially ended in June 2009.
Most economists expect growth to improve to about a 2 percent annual rate in the July-September quarter. Lower gasoline prices have provided some relief to consumers. And factories are revving up again after being interrupted by Japan's earthquake and nuclear crisis.
Before Friday's jobs report, the economy had been showing signs of better health. Consumer spending was strong in August. Auto sales were brisk. Manufacturing expanded. And fewer people applied for unemployment benefits.
Yet even 2 percent growth isn't fast enough to generate many jobs. And the economy remains vulnerable to outside shocks â€” a worsening European debt crisis or more political brinkmanship in Washington.
The Obama administration has estimated that unemployment will average about 9 percent next year, when Obama will seek re-election. The rate was 7.8 percent when he took office.
The White House Office of Management and Budget projects overall growth of just 1.7 percent this year.