Employment shrank more than expected in July, the Labor Department said Friday, as the sluggish recovery from the sharpest job losses in decades raised speculation that the Federal Reserve may take new action this week.
Nonfarm payrolls fell by 131,000 as census job cuts continued. Wall Street expected a loss of 87,000. June payrolls fell by 225,000 vs. the initial reading of 125,000.
Private payrolls rose by 71,000 in July, their seventh straight gain but also less than expected.
The jobless rate held at 9.5% because 181,000 people gave up looking for work. Over 1.1 million people have left the labor pool in the last three months amid poor job prospects.
“The perception that there is job growth and an economic recovery is under way appears to be a myth,” said Todd Schoenberger, managing director of LandColt Trading.
Underemployment, including discouraged and part-time workers who want full-time jobs, stayed at 16.5%, far above normal.
The S&P 500 fell 1.7% intraday on the jobs report but pared its loss to 0.4% by the close. The Dow and Nasdaq fell 0.2%.
The weak labor market and slowing economic growth may spur the Fed to announce after Tuesday’s meeting that it will resume purchases of Treasuries and other assets to keep credit flowing, analysts said. Fed chief Ben Bernanke and other policymakers have signaled recently that they are ready to do more if needed.
“The only thing I can say about this morning’s job figure was it was a pathetic report with the Fed actually in play now,” Thomas di Galoma, head of U.S. fixed-income rates trading at Guggenheim Partners, said in a note.
However, he added, “I think the Fed’s options are truly limited and there aren’t too many arrows left in the quiver.”
The central bank will likely reiterate its vow Tuesday to keep rates near zero for an “extended period.”
Government shed 202,000 jobs in July, including 143,000 census workers. Cash-strapped state and local governments also slashed jobs. Excluding census workers, the U.S. created a net 12,000 jobs, well below the 200,000 to 300,000 jobs that economists say is needed to reduce unemployment.
“That is clearly inadequate to sustain an economic expansion,” said Richard DeKaser, chief economist at Woodley Park Research.
But he said signs that Europe’s financial crisis is easing and the reinstatement of benefits for the long-term unemployed will help.
Service companies added 38,000 jobs in July, led by gains in education and health services and leisure and hospitality. Goods producers hired 33,000 workers as manufacturers added 36,000 jobs, outweighing construction losses.
On the upside, the average workweek edged up to 34.2 hours from 34.1. Employers typically push existing staff longer before bringing in new employees.
But another leading indicator — temp jobs — fell by 5,600, the first drop in 10 months. That could suggest some weakness — or that more firms may be willing to make permanent hires.
The economy has created just 654,000 jobs so far this year. At that rate, the U.S. wouldn’t recoup the 8.4 million jobs lost in 2008 and 2009 until June 2017.
