Jobs Report Disappoints As Economy Adds Just 96,000 Jobs

Faced with uncertainty over the fiscal cliff, U.S. employers are holding back on hiring.

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Easing unemployment claims and fewer layoffs last month helped stoke hopes that August's job numbers would follow in the footsteps of July's better-than-expected gains. Those hopes were dashed Friday with news that the economy added just 96,000 jobs in August, according to the U.S. Bureau of Labor Statistics, far less than economists' consensus number of 125,000.

The unemployment rate inched down to 8.1 percent, marking the 43rd consecutive month of unemployment above 8 percent. The Labor Department also revised downward June and July employment numbers, slashing the total by more than 40,000.

The discouraging BLS report comes on the heels of the 201,000 private-sector job gains reported by the ADP National Employment report Thursday, which far exceeded economists' estimates of around 140,000 jobs. That report, together with a handful of other economic indicators released this week, emboldened economists to predict that August could beat out July's gains—welcome news given that job growth has slowed from an average monthly pace of 225,000 in the first quarter to a measly 95,000 in recent months.

But not everyone is surprised at the hiccup.

"Is [job growth] really sustainable at that pace? I don't think so," says Diane Swonk, chief economist at Chicago-based financial services firm Mesirow Financial, referring to the accelerated pace of job creation seen in July.

On the bright side, employers aren't actively firing workers, she says, they're just not actively hiring anyone either.

"There's just a lack of additional hiring because of uncertainty about the fiscal cliff and manufacturing sector," Swonk says. "The contribution from manufacturing is slipping."

Campaigning ahead of the November election has centered on the economy, which is slogging through its worst stretch of high unemployment in recent history. August's lukewarm job gains but falling unemployment rate could provide fodder for either campaign, but the real heavyweight number politically will be October's job report, which comes out just days before the election.

"Whether or not it will sway voters, I don't know," says Joel Naroff, president and chief economist at Naroff Economic Advisors. "It has the potential to."

Besides fodder for political campaigns, the less-than-stellar jobs numbers could give the Federal Reserve more justification to launch another round of quantitative easing. Although the idea has been floating around due to disappointing economic and job growth, July's encouraging job gains didn't give the Fed much rationale for launching another bond-buying program.

"It's really 50/50 because we haven't had the game-changing data that makes it a slam dunk even though technically we've met all the preconditions," Swonk says. "It's going to happen, the question is when."

Meg Handley is a reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter at @mmhandley.