WASHINGTON – Job creation came to a halt in August, according to new government data, intensifying pressure on the Obama administration and the Federal Reserve to find new tools to save an economic recovery in danger of sputtering out.

The flatlining of job growth last month — far worse than the 85,000 positions added in July — means that employers were shedding jobs as rapidly as they created them.

The data were not as bad as might appear at first glance; the unemployment rate was unchanged at 9.1 percent, and a strike by 45,000 Verizon workers temporarily depressed job growth. Over the past four months, however, the nation has added jobs far too slowly to keep up with population growth, let alone put armies of the jobless back to work.

If job creation does not accelerate soon, unemployment will almost certainly begin rising.

“This is not just a jobless recovery, it’s a recovery-less recovery,” said Howard Rosen, who studies the labor market at the Peterson Institute for International Economics.

Financial markets fell in response to the gloomy economic news and new signs of crisis in Europe. The Standard & Poor’s 500 index was down 2.5 percent Friday, and money gushed into safe Treasury bonds, driving interest rates downward.

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The Federal Reserve was already set to weigh new policies to try to boost growth at its policy meeting Sept. 20-21, and the weak jobs numbers will add urgency to that discussion.

With its main target interest rate near zero for nearly three years and set to stay there for at least two more, the Fed will consider further unconventional policy options.

One likely candidate: Selling off some of the short-term Treasury securities the Fed owns and using the proceeds to buy longer-term bonds, which might help push down long-term rates on mortgages and corporate lending.

“They are likely to take another step to ease policy, and there’s a high chance they do it in September,” said Ethan Harris, co-head of global economics for Bank of America Merrill Lynch. “If they reallocate their bond portfolio, it’s a way to provide a measure of stimulus, though it’s more symbolic than substantive. But it at least shows the Fed is still in the game and not out of options.”

President Barack Obama, meanwhile, is scheduled to deliver a major speech Thursday on a plan for job creation. He will likely call for extending a cut in the payroll tax beyond its current expiration at the end of the year and for new funding for highways and other infrastructure projects, among other steps.

“The president had concluded long before this announcement that growth and job creation was nowhere close to as strong as it needs to be,” said Gene Sperling, chief White House economic adviser. “That’s why he is immediately calling Congress together to put forward an immediate economic plan that would have a significant impact on growth and job creation over the next 12 to 18 months.”

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The open question is whether Republicans will go along with the plans, given the atmosphere of ill will between the two parties and their diametrically opposite approaches to trying to strengthen the economy.

House Speaker John Boehner, R-Ohio, responded to the report Friday by saying that “Republicans are listening and focusing on removing barriers to job growth, whether it’s eliminating unnecessary regulations that drive up prices or stopping Washington from spending money it doesn’t have.”

Employers seem to have been fazed by a series of blows: There was a confidence-rattling debate between the White House and congressional Republicans over raising the federal debt ceiling in late July and into August, and then the stock market began a series of wild gyrations, led by uncertainty over both the U.S. outlook and a deepening debt crisis in Europe.

What was unclear was whether those setbacks for business and consumer confidence would translate into a worsening jobs outlook. Now, that seems to be the case.

But there could be reason for measured optimism for the months ahead. The stock market, while still jumpy, is moving less dramatically than it did in early August. While the political environment remains polarized, there are no imminent threats of national default.

“In August there was an off-the-charts negative period in terms of psychological hits to the economy and the markets,” Harris said. “If Washington goes from record dysfunction to normal dysfunction and the markets keep calming down, maybe things start to look a little bit better.”

An Obama administration official said that the president will be introducing proposals next week that previously have attracted support from both Republicans and Democrats.

“There will be bold ideas that bring together both sides of the aisle,” Secretary of Labor Hilda Solis said.

 


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