US jobs growth cools in August

US jobs growth slowed sharply in August, setting the stage for the Federal Reserve to pump additional money into the sluggish economy next week and dealing a blow to President Obama as he seeks reelection in November.

Nonfarm payrolls increased only 96,000 last month, the Labour Department said today. While the unemployment rate dropped to 8.1 percent from 8.3 percent in July, that was because so many Americans gave up the hunt for work.

The survey of households from which the jobless rate is derived showed a drop in employment. The lackluster report keeps the pressure on Obama ahead of the November vote in which the health of the economy looms large.

"This weak employment report, in jobs, wages, hours worked and participation is probably the last piece the Fed needs before launching another round of quantitative easing next week," said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

US stock index futures pared their gains on the report, while Treasury debt prices turned positive. The dollar extended its losses versus the euro.

Economists polled by Reuters had expected payrolls to rise 125,000 last month, but some had pushed their forecasts higher after upbeat data on Thursday.

Fed Chairman Ben Bernanke last week said the labor market's stagnation was a "grave concern," a comment that raised expectations for a further easing of monetary policy as soon as the central bank's meeting on Wednesday and Thursday.

The economy has experienced three years of growth since the 2007-09 recession, but the expansion has been grudging and the jobless rate has held above 8 percent for more than three years -- the longest stretch since the Great Depression.

The jobless rate peaked at 10 percent in October 2009, but progress reducing it stalled this year, threatening Obama's bid for a second term. An online Reuters/Ipsos poll on Thursday gave Republican Challenger Mitt Romney a 1-point edge on Obama, 45 percent to 44 percent.

The lack of headway putting Americans back to work has also put the question of further monetary stimulus on the table at the Fed. The central bank has held interest rates close to zero for nearly four years and pumped about US$2.3 trillion into the economy through two bouts of bond buying.