84,000 jobs cut in Aug.; jobless rate hits 5-year high of 6.1%

The U.S. economy grew at a surprisingly strong 3.3% annual rate in the second quarter of the year, buoyed largely by rising exports. Some recent economic data has also been positive, including a report this week that productivity gains have been better than expected. But San Francisco Federal Reserve Bank President Janet Yellen in a Thursday speech laid out three reasons why she predicts "decidedly subpar" growth through the end of the year. Consumer spending is sluggish, even with federal tax rebates, strong export growth will likely slow and the housing, financial and labor markets are all weak, Yellen said.

The Fed has cut a key interest rate to a low 2% to bolster the economy, and taken a series of actions to provide liquidity to financial markets. Today's labor market report could make it more likely that the Fed will keep rates at the current, low level for some time.

"The report confirms that the improvement in (economic) growth to 3.3% in the second quarter was just a head-fake. We expect growth to slow in the current quarter to just over 1% and then turn negative in the fourth quarter," says Nigel Gault, chief U.S. economist of Global Insight. "For the Fed, the report confirms that the notion of a rate hike to combat inflation is fanciful — the question now is rather whether the Fed might need to cut again".

The Labor Department said the jobless rate was highest for teenagers, at 18.9%, African Americans, at 10.6% and Hispanics at 8%. The white unemployment rate was 5.4% in August

Manufacturing employment fell by 61,000 in August, with the auto industry shedding 39,000 jobs alone. Temporary employment service employment shrank by 37,000. The construction industy has lost an average of 14,000 jobs in July and August. Still, that's an improvement from the first half of the year, when 45,000 construction jobs were lost each month, on average.

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