US payrolls fall less than expected in August

US employment fell for a third straight month in August, but the decline was far less than expected and private payrolls growth surprised on the upside, easing pressure on the Federal Reserve to prop up growth.

Nonfarm payrolls fell 54,000, the Labor Department said on Friday as temporary jobs to conduct the decennial dropped by 114,000.

Private employment, considered a better gauge of labor market health, increased 67,000 after a revised 107,000 gain in July. In addition, the government revised payrolls for June and July to show 123,000 fewer jobs lost than previously reported.

The decline in payrolls was about half as large as expected. Analysts polled by Reuters had forecast overall employment falling 100,000 and private-sector hiring increasing 41,000.

The unemployment rate edged up to 9.6% last month, in line with market expectations. The rise in the jobless rate reflected an increase in the labor force as some discouraged workers resumed the hunt for jobs.

"We really need private businesses to step up and begin to hire more aggressively for this recovery to really gain momentum," said Ryan Sweet, a senior economist at Moody's Economy.com in West Chester, Pennsylvania.

The smaller-than-expected job losses last month could assuage fears the economy is sliding back into recession and ease pressure on the Fed -- the U.S. central bank -- to launch a fresh round of bond buying to keep borrowing costs low.

Concerns of a double-dip recession have diminished somewhat this week as data showed strength in manufacturing and gains in consumer spending but the sluggish pace of growth has kept investors on edge.

While the unwinding of temporary census jobs has been a major drag on payrolls, an uncertain economic outlook has also caused businesses to pare hiring.

Consumer spending hurt

Jobs scarcity is hurting consumer spending, which normally accounts for about two-thirds of US economic activity, leaving the recovery from the worst recession in 70 years sputtering.

Growth slowed markedly in the second quarter and Fed Chairman Ben Bernanke has said the central bank stands ready to take fresh measures to support the economy if needed.

Minutes of the Fed's last policy meeting released this week showed several policymakers felt the outlook would have to deteriorate "appreciably" to spur fresh monetary support.

"The economy is in a bit of a lull and gauging how long we are stuck in this rut will determine if the Federal Reserve needs to step in," said Sweet.

The economy's poor health has weakened President Barack Obama's popularity and could see Republicans wrestle control of Congress away from the Democratic Party.

Typically in midterm elections when there is no presidential race the party in power in the White House suffers losses, but analysts say the drubbing Democrats could face may be unusually severe.

Last month, the dominant service sector added 67,000 jobs after July's 70,000 rise. Temporary help services, which is seen as a harbinger of future permanent hiring, rebounded 16,800 after falling in July for the first time since September.

There were more job losses at cash-strapped state governments, pulling down government payrolls down by 121,000 compared to a 161,000 fall in July.

Employment in the goods-producing sector was unchanged last month as a drop in manufacturing offset an increase in construction payrolls, which were boosted by the return of 10,000 striking workers. Manufacturing jobs fell 27,000 after gaining 34,000 in July.

The average workweek was unchanged at 34.2 hours the previous month.