By CONOR DOUGHERTY and DAMIAN PALETTA
America’s employers added jobs at a tepid pace in August, posing a re-election challenge for President Barack Obama and raising the likelihood the Federal Reserve will step in to spur growth when it meets in the coming week.
The Labor Department employment report, which draws more than its usual scrutiny as elections approach, said the U.S. added a seasonally adjusted 96,000 jobs last month. That is down from the 141,000 added in July and too few to make headway in putting the nation’s 12.5 million unemployed workers back on the job.
The unemployment rate ticked down to 8.1%, from 8.3% in July, but for the wrong reasons. The jobless rate, based on a separate survey from the main job tally, fell as people gave up searching and left the workforce, not because they found positions.
“Every major aspect of the report was negative,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn. “In effect what we’ve had is very mediocre gains for three years. It will look like we’re off to the races but then we’re back to weak gains again, and now we’re back into one of those phases where we’re looking at clearly subpar numbers.”
Coming less than 12 hours after the hoopla of the Democratic National Convention, the soft job gains are a reminder of how the weak economy remains the election’s central issue. The report also immediately tests the party’s new emphasis on asking voters to be patient. Republicans, meanwhile, are enlisting Ronald Reagan’s famous question, and asking voters if they are better off than four years ago.
Over several days of the past week’s Democratic convention in Charlotte, Mr. Obama and other Democrats emphasized patience, saying the severity of the financial crisis meant the job market would take longer than usual to recover.
President Obama, speaking at a rally in New Hampshire, said: “We need to create more jobs faster. We need to fill the hole left by this recession faster.”
Republicans pointed to the report as evidence that change is needed in Washington.
“If last night was the party, this morning is the hangover,” GOP presidential candidate Mitt Romney said. “For every net new job created, nearly four Americans gave up looking for work entirely. This is more of the same for middle class families who are suffering through the worst economic recovery since the Great Depression.”
Friday’s jobs update raises the likelihood that the Fed will launch steps to spur the economy, including a new bond-buying program, at the end of its policy meeting in the coming week.
That is one reason investors, many eager for Fed action, appeared to take the jobs tally—which fell short of the roughly 125,000 many had expected—in stride. On Friday, the Dow Jones Industrial Average rose 14.64 points to 13306.64.
Last week, at a meeting of economists and central bankers in Jackson Hole, Wyo., Fed Chairman Ben Bernanke described the weak labor market as a grave problem—a strong suggestion that he wanted to take new measures to strengthen economic growth. He also said the economic benefits of a bond-buying program exceeded the costs.
The disappointing payroll numbers, taken with other reports that indicate a manufacturing slowdown, suggest growth isn’t picking up and remove a final hurdle in the way of the Fed proceeding with new action.
Officials have been leaning toward an open-ended bond-buying program in which the Fed preserves the option to purchase more bonds after an initial allotment if the economy doesn’t pick up. They also have been leaning toward buying a mix of mortgage-backed and Treasury securities.
On Friday, Mr. Romney suggested he was against new measures by the Fed to stimulate the economy, though he appeared to be careful not to speak too forcefully against the central bank.
In a Fox News interview, he said more easing measures by the central bank wouldn’t do much good. “I don’t think there’s any action that they are going to take that will have an immediate impact on the economy,” Mr. Romney said.
President Obama has rarely weighed in on the Fed, often taking the traditional position that the White House shouldn’t be seen as trying to influence the central bank’s decisions.
The Labor Department report showed private employers ranging from utilities to health care added a total of 103,000 jobs in August, while government cut head counts by 7,000. States and localities shed 10,000 jobs while the federal government added 3,000.
Some sectors that had shown strength, including manufacturing and temporary-help services, switched from adding jobs in previous months to shedding them in August.
The professional and business services category—a catchall that includes jobs such as lawyers and consultants—increased by 28,000 in August compared with a 47,000 gain in July.
Appistry Inc. is among the many firms that recently have slowed their pace of hiring. The St. Louis-based company, which sells software and hardware that help laboratories analyze genetic code, has hired about 20 people this year, bringing its head count to about 50 employees.
But Kevin Haar, Appistry’s chief executive, said he is taking a much more deliberate approach to hiring.
He had plans to hire four people last month, but hired one. He plans to do the same this month. The reason: His increasingly cautious customers have started making orders in the $75,000 range instead of bigger projects that can run $200,000 or more.
Also, since so many research institutions receive money from the federal government, Mr. Haar is unsure precisely how scheduled federal spending cuts could affect his customers.
“We feel like we fight with the level of uncertainty every day,” he said. “Our industry is a huge growth area, but there’s a lot of care and hesitation to spend money.”
Kimberly Fair, of Lakeland, Fla., is among the millions of people combing websites for jobs and sending out resumes. Ms. Fair, who is 33 years old, lost her job as a school assistant in July and has been looking for work in the education field.
She has a college degree and is doing graduate work at night school in hopes of becoming a high-school guidance counselor.
But there are few jobs, so it takes time to find the right place to apply. “I see nurses, I see forklift operators—things that I’m obviously not qualified for at all, but interspersed with that are jobs that I go, well, I could do that,” Ms. Fair said. “Maybe I could be an administrative assistant for a while just to get through grad school and get my career going.”
—Jon Hilsenrath contributed to this article. A version of this article appeared September 8, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Jobs Data Weigh on Obama, Fed.