North America

Private employers hired more workers over the past three months than first thought, a glimmer of hope for the weak economy ahead of the Labor Day weekend. But the unemployment rate rose because not enough jobs were created to absorb the growing number of people looking for work.

Companies added a net total of 67,000 new jobs last month and both July and June's private-sector job figures were upwardly revised, the Labor Department said Friday.

Stocks surged after the report's release. The Dow Jones industrial average rose more than 100 points in afternoon trading and broader indexes were all up.

While the report hardly suggests the economy is out of danger, it's a reassuring sign after weeks of troubling data and comes after some encouraging economic figures in the past week.

Scott Brown, an economist at Raymond James, said he sees no sign of the country slipping back into recession.

"You're still seeing broad-based job gains. It's not strong, but it's positive," Brown said.

Overall, the economy lost 54,000 jobs as 114,000 temporary census positions came to an end. For the first time this year, the manufacturing sector lost jobs — down a net total of 27,000 for the month. The auto industry accounted for 22,000 of those lost jobs, the department said. But those losses were largely due to a shift in the timing of the industry's summer shutdowns.

State and local governments shed 10,000 positions and have had net jobs losses in every month but one this year.

President Barack Obama said the report shows the economy is moving in the right direction. But he said further action is needed to help bring back the 8.4 million jobs lost during the downturn.

"It reflects the steps we've already taken to break the back of this recession. But it's not nearly good enough," Obama said. He called on Congress to extend the Bush administration's tax cuts for middle-class Americans and to pass a bill that would increase lending and reduce taxes for small businesses.

Republicans in Congress want to extend the tax cuts for all Americans, including the wealthy. That's a position more rank-and-file Democrats are beginning to embrace because the economy hasn't improved fast enough.

The midterm election is shaping up to be a referendum on Democrats' handling of the economy. Most polls point to them losing a great number of seats in Congress and possibly control of the House and Senate.

Economists note that the measures proposed by Obama will likely make little difference by November.

"It's too late for any policies enacted now to make the economy look better by Election Day," Nigel Gault, an economist at IHS Global Insight, wrote in a note to clients.

Temporary employment rose by nearly 17,000, after a slight loss in July. That indicates employers are looking to boost their work forces, but are reluctant to do so permanently. Temporary hiring averaged 45,000 per month from October to May, but has since slowed.

The jobless rate rose to 9.6 percent from 9.5 percent in July. More than a half-million Americans resumed their job searches in August, which drove up the jobless rate. When the unemployed stop looking for work, they are no longer counted in the jobless rate. It's the first time the labor force has grown since April.

Separately, the Institute for Supply Management, a trade group, said that the U.S. service sector expanded for the eighth straight month in August, but the pace of growth slowed. The service sector accounts for about 80 percent of the nation's jobs, including those in health care, construction and financial services.

The jobs report showed the service sector hired workers in August. The health care industry hired a net total of 28,200 positions. Restaurants and hotels created 17,300 new jobs.

Both June and July's figures were revised to show the private sector created more jobs in both months. The July figures were revised upward to 107,000 from 71,000. June was revised upward to 61,000 from 31,000. The revisions reflected smaller losses in construction, temporary help services and non-census government jobs.

Still, hiring has now been weak for four straight months. That deprives consumers of cash and reduces their ability to spend. Analysts expect economic growth to be tepid for the rest of this year and the jobless rate could keep rising to 10 percent or more in the coming months.

Average hourly earnings increased modestly and by more than economists expected, rising to $22.66 from $22.60.

The economy lost nearly 8.4 million jobs in 2008 and 2009. This year, private employers have added back 763,000 jobs. But the unemployment rate has barely moved from the 9.7 percent rate in January.

Including those who have given up looking for work and those who are working part time but would prefer full-time work, the so-called "underemployment" rate rose to 16.7 percent from 16.5 percent.

The report may reduce pressure on Fed Chairman Ben Bernanke to take steps at the Fed's meeting later this month to boost the economy, several analysts said. Bernanke said last week the central bank will take more steps to stimulate the economy if necessary. But he also said the foundations have been laid for economic growth to accelerate next year.

Mounting concerns about the health of the economic recovery pressured all three major indexes sharply lower last month, posting first down August in five years and the worst August since 2001.

But a series of upbeat economic data from both the United States and overseas markets boosted sentiment. The Dow Jones industrial average jumped more than 250 points, while the Standard & Poor's 500 index and the Nasdaq composite index rallied nearly three percent, all refreshing the largest daily gain since early July.

The Dow rallied 254.75 points, or 2.54 percent, to 10,269.47. The S&P 500 gained 30.96 points, or 2.95 percent, to 1,080.29 and the Nasdaq surged 62.81 points, or 2.97 percent, to 2,176.84.

Stocks were set for a higher opening after data from China and Australia sent overseas equity markets rising.

China's Federation of Logistics and Purchasing said on Wednesday that purchasing managers indexes climbed after three straight months of drops, showing the country's manufacturing sector was still expanding. Meanwhile, government data showed that the Australian economy grew in the second quarter at its fastest pace in three years, exceeding economists' expectation.

Major indexes surged further after the Institute of Supply Management's manufacturing figures showed an unexpected rise in U. S. manufacturing activity in August. The index rose to 56.3 compared with expectations of a drop to 52.8.

U.S. economic growth was revised downward to an annual rate of 1.6 percent in the second quarter of this year, compared to an initial estimate of 2.4 percent, the Commerce Department reported Friday.

That was the slowest quarterly growth since U.S. economic activity began to pick up in the second half of last year. Economists had expected a sharper revision to a pace of 1.4 percent.

The U.S. government usually releases three estimates of the quarterly Gross Domestic Product (GDP) -- the output of goods and services produced by labor and property located in the United States.

The deceleration in economic growth in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment.

Imports surged 32.4 percent last quarter, the largest since the first quarter of 1984, well exceeding a 9.1 percent rise in exports.

Contributions from business inventories proved to be less than initially estimated. It added 0.63 percentage points to GDP change, compared to the about 1 percent previously estimated.

Businesses began to replenish inventories that were depleted during the recession, which was a main driver of growth in the early stages of the recovery.

Historically, severe recessions were usually followed by strong rebounds, but this time proved to be an exception. During this recession, which spanned a period from the fourth quarter of 2007 to the second quarter of 2009, the cumulative fall in GDP was 4.1 percent, making this the deepest recession since 1947.

The anemic economic recovery and lackluster job creation prompted the Federal Reserve to take on new measures to spur the economy at its last rate-setting meeting.

The Fed decided Aug. 10 to buy more Treasury securities and keep its holdings of securities unchanged instead of letting it shrink as previously planned, a move that indicates the Fed is prepared to take further actions if economic prospects continues to worsen.

Even this modest growth might proved to be short-lived, some pessimists believed. They argued growth in recent quarters was primarily driven by government stimulus, including federal government's 862-billion-dollar stimulus package and tax credit for homebuyers. But as the tax credit expired and federal stimulus began to fade, the economy might post even more modest growth in the coming quarters, if not a double-dip recession.

Faster job growth is needed to accelerate the recovery, but economists worry the government's July employment report won't show strong gains.

Without more jobs, Americans are likely to remain cautious with their spending, restraining the economic rebound. But without more spending, companies will likely be slow to hire.

The report will be released Friday morning.

"To break out of this, we need both employment and consumption to come up together," said Nigel Gault, an economist at IHS Global Insight.

While the economy has grown modestly in the past year, much of the rebound is due to temporary factors. They include government stimulus spending and companies' restocking of warehouses depleted in the recession.

More hiring and rising incomes would put the recovery on a sustainable footing. But Friday's jobs report may not show much of an increase.

Companies are forecast to have added a net total of 90,000 private-sector jobs in July, according to economists surveyed by Thomson Reuters. That's not nearly enough to bring down the unemployment rate, which is expected to rise to 9.6 percent from 9.5 percent.

Overall, the economy is likely to lose a total of 65,000 jobs because of the end of temporary positions with the U.S. Census Bureau.

Friday's report is being closely watched by the Federal Reserve as it considers ways to energize the recovery. A weak jobs report would put pressure on the Fed to take new steps to boost the economy and keep interest rates at record lows when it meets next week.

Economic reports Thursday showed that the economic recovery is still weak. Retailers around the country posted a sales increase of just 2.8 percent for July compared with a year earlier — when the economy looked much bleaker than it does today.

The July figure, released by the International Council of Shopping Centers based on results from 31 chains, was the fourth straight month of weak retail numbers. And in a reminder of how weak the job market is, the government said Thursday that first-time claims for unemployment benefits rose last week to their highest level in four months.

Corporate net income rose sharply in the second quarter, but businesses aren't using the proceeds to ramp up hiring. Companies in the S&P 500 index reported a 46 percent increase in net earnings for the second quarter, compared to a year earlier.

But many employers are uncertain about the future course of the economy. Some are concerned sales will slow once government stimulus and other temporary factors fade. Others fear what will happen if federal income taxes are allowed to rise next year as tax cuts enacted by President George W. Bush expire.

"People have a long worry list they're looking at," said Ethan Harris, chief economist at Bank of America Merrill Lynch.

Showing caution, some companies have resorted to hiring mostly temporary workers. Temporary help services have added 192,300 jobs this year, nearly a third of the net gain of 593,000 private-sector jobs.

That increase shows "businesses are taking the least committed way" of increasing their work forces, Harris said.

Vehicle parts maker Federal-Mogul Corp., for example, has hired 1,400 workers in the United States in the past year, as car sales have grown. But many of those hires are temporary, CEO Jose Maria Alapont said. That allows the company to stay flexible and reduce its work force if the economy sours, he said.

"There is a very clear recovery during the first half of the year, but there are still questions whether that will continue in the second half," he said in an interview last month.

The Southfield, Mich., company cut its global work force by 11,000 in 2008 and 2009 to about 39,000.

Some companies are adding permanent workers. The hospital chain HCA Inc. currently has 8,300 open positions, said company spokesman Ed Fishbough. That includes nurses, physicians and information technology professionals needed to build HCA's ability to handle electronic medical records. HCA employs about 190,000 people in the U.S. and the U.K.

Many companies are still laying off employees. FBR Capital Markets, an investment bank based in Arlington, Va., cut its work force by about 15 percent in early July to about 500 employees, saying it needed to reduce costs. In the second quarter, its net loss deepened 18.5 percent to $25.8 million despite an increase in revenue.