Unemployment Rate Drops But Jobs Report Shows Alarming Jump in Job Losses

The number of workers who said they lost their job was the highest in nearly three years last month, raising concerns among economists digging into what was considered a weak jobs report Friday.

The Labor Department's August jobs report showed employers added 169,000 jobs in the month. But that's a net number that reflects the balance between those hired and those let go.

Hiring continued at a slow pace in August, and the unemployment rate fell as more Americans dropped out of the labor force.

Although that was an improvement from 104,000 jobs added in July, it was also slower than the average pace of job growth over the last 12 months, and missed economist expectations. Job growth for both June and July was also revised lower by a total of 74,000 jobs.

In the part of the separate report that surveys households, the respondents are broken into three categories: job losers who lost a permanent job or had a temporary job come to an end; job leavers who quit a job; and those who are either entering the labor force for the first time or re-entering it to look for work.

The number of job losers not on temporary layoffs has been falling steadily since the start of 2010, with only the occasional minor monthly increase during that period. Employers have been hanging onto the workers they have, said labor economist Heidi Shierholz of the Economic Policy Institute, even if they weren't adding jobs at the pace she says the economy needs.

But there was a 208,000 increase in job losers in August, the biggest jump recorded since November 2010.

Economists say it's too soon to say this is a sign that the overall economy will start to shed jobs in the coming months. But they do say it's another troubling sign of weakness.

"Right now, it's a curiosity and not a good one," said Robert Brusca of FAO Economics. "It' s another sign of concern in this report."

The government report came a day after outplacement firm Challenger, Gray and Christmas reported a jump in layoff announcements during August. The 50,000 job cut announcements was up 33 percent from July and the highest reading since February. Not all those layoff announcements were implemented in August, though, so the Challenger report could indicate more job losses on the horizon.

Meanwhile, the unemployment rate fell to 7.3 percent, but the decline came for the wrong reasons, as 312,000 people dropped out of the labor force. Only 63.2 percent of Americans now participate in the labor force -- meaning they have a job or are looking for one. That's the lowest rate since August 1978.

The report was being closely watched for signs that the Federal Reserve will begin pulling back on its controversial bond-buying program later this month. The Fed has said that the timing of the "tapering" would depend heavily on improvement in the labor market.

"When they look at the full weight of evidence, they'll conclude there's been no significant change in the last few months," said Jim O'Sullivan, chief U.S. economist for High Frequency Economics. "I think they will go ahead with the tapering in September."

But economists were mixed in their reactions. And stocks rose following the report, as investors took weak job growth as a sign that the Fed may hold off on tapering until later this year.

"It would very much surprise me if they tapered at this upcoming meeting," said J.J. Kinahan, chief strategist at TD Ameritrade. "Not only is the quality of jobs not exactly great, perhaps we're not creating as many jobs as we think."

Overall, the trend remains the same: Modest hiring has continued at a rate of about 184,000 jobs a month for the last year, but that's not nearly fast enough for the 11.3 million people who remain unemployed. The economy needs at least 200,000 new jobs a month just to keep pace with population growth.