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Weak job growth makes bold Fed action more likely

Friday - 9/7/2012, 6:04pm  ET

By The Associated Press

WASHINGTON (AP) - U.S. employers added 96,000 jobs in August, a tepid figure that points to the economy's persistent weakness and slowing prospects for the unemployed.

The unemployment rate fell to 8.1 percent from 8.3 percent in July. But that was only because more people gave up looking for jobs. People out of work are counted as unemployed only if they're looking for a job.

The sluggish job growth could slow the momentum President Barack Obama hoped to gain from his speech Thursday night to the Democratic National Convention.

It could also make the Federal Reserve more likely to unveil a new bond-buying program at its meeting next week. The goal would be to lower long-term interest rates to encourage borrowing and spending.

Hourly pay fell in August, manufacturers cut the most jobs in two years and the number of people in the work force dropped to its lowest level in 31 years. The government also said 41,000 fewer jobs were created in July and June than first estimated.

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Here's what The Associated Press' reporters are finding:

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FED LIKELY TO ACT

Will the Federal Reserve go big next week?

Most economists say they expect the Fed to announce action to try to stimulate the economy. And many now think the Fed will make the boldest move it can _ a third round of bond buying to try to lower long-term interest rates.

This is known as quantitative easing.

"If there was any lingering doubt within the Fed about announcing a new round of quantitative easing next week, this should surely push them over the edge," said Tom Porcelli, an economist at RBC.

Nigel Gault, chief U.S. economist at IHS Global Insight, thinks the Fed will focus any new purchases on mortgage-backed securities to try to lower mortgage rates and boost the fledgling housing recovery.

_ Martin Crutsinger, AP Economics Writer

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SHRINKING WORK FORCE

The unemployment rate declined in August, but for a bad reason: The government doesn't count people as unemployed if they've stopped looking for a job.

The number of people working or looking for work shrank in August by 368,000, the government said. The reasons vary, economists say.

Many people, after months of looking for a job without success, give up. But this group of "discouraged" workers doesn't fully capture the phenomenon.

New parents, for example, may quit a job to focus on raising children.

An older worker who's laid off may claim Social Security benefits instead of looking for a new job.

There are also demographic shifts underlying the trend: Baby boomers are retiring. And fewer young people are entering the work force.

The result is that the percentage of working-age Americans with a job or looking for one has dropped to 63.5 percent, a 31-year low.

_ Christopher S. Rugaber, AP Economics Writer

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YOUNG DROPOUTS

One reason the proportion of adults in the work force has dropped is that many younger adults have given up looking for a job. Or they never started.

The work force consists of those with a job or actively looking for one.

The proportion of people ages 16 to 24 in the workforce fell more than 1 percentage point last month to 54.1 percent. That's the lowest "participation rate" for that group in 57 years. Many are likely staying in school or returning to school, hoping for a turnaround in the job market later.

By contrast, the participation rate for workers 55 and older rose from 40.2 percent to 40.4 percent. The rate for those 25 to 54 was unchanged at 81.4 percent.

_ Christopher S. Rugaber, AP Economics Writer

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WHO'S UNEMPLOYED?

When the government surveys 60,000 U.S. households each month to determine the unemployment rate, it asks a series of questions, by phone or in person. For example:

Do you own a business? Did you work for pay? If not, did you provide unpaid work for a family business or farm? (Those who did are considered employed.)

Afterward, the survey participants are asked whether they had a job and, if so, whether it was full or part time.

The government's definition of unemployed is someone who's out of work and has actively looked for a job in the past four weeks.

_ Christopher S. Rugaber, AP Economics Writer

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GOVERNMENTS HURTING, NOT HELPING

In normal recoveries, government hiring helps economies rebound from recessions.

Not this time.

When you count the 7,000 public-sector jobs lost in August, governments at all levels _ federal, state and local _ have slashed 670,000 jobs since the recession ended in June 2009. By contrast, private companies have added 3.5 million jobs.

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