Employers cut payrolls by 4,000 in August

On the payrolls front, job gains in June and July turned out to be smaller. The economy added 68,000 new jobs in July compared with 92,000 reported a month ago. For June, 69,000 new jobs were created, less than the 126,000 previously reported.

The 4,000 jobs cut in August are from both private and government employers. The government actually cut 28,000 jobs, while all private employers added 24,000.

Credit problems began with “subprime” mortgages held by people with spotty credit histories or low incomes. The problems have spread to some more creditworthy borrowers and intensified in August, unnerving Wall Street. In reaction, the Fed has pumped tens of billions of dollars into the financial system and lowered an interest rate that it charges banks for loans.

Credit is the economy’s life blood. If it becomes more difficult to obtain, people might tighten their belts and companies might spend and invest less, including cutting back on hiring. That would crimp overall economic activity.

Under a worst-case scenario, the economy could slip into a recession this year. Earlier this year, former Fed chief Alan Greenspan had put the odds at one in three.

Commerce Secretary Carlos Gutierrez, in an interview with The Associated Press on Friday, said that was a “low likelihood” and that the “most likely scenario is that we will get through this dip and we will continue to see growth.”

The economy, which grew at a brisk 4 percent pace in the April-to-June period, is expected to slow to half that pace in the three months from July through September. Against this backdrop, the unemployment rate is expected to creep higher, reaching close to 5 percent by the end of the year.

The unemployment rate, which is derived from a different statistical survey than the payroll figures, held steady as 340,000 people left the work force. Fewer people in that survey reported finding employment in August compared with July.

President Bush’s handling of the economy has gotten lukewarm ratings from the public. Only 41 percent approved of the president’s economic stewardship in early August, according to an AP-Ipsos poll.

Mindful of political backlash heading into the 2008 elections, the administration and Democrats on Capitol Hill have been scrambling to help millions of homeowners in danger of losing their homes and looking for other ways to limit the fallout.

Sen. Hillary Clinton, D-N.Y., who is vying for her party’s presidential nomination, called the new employment figure disappointing and said it was evidence that “the Bush administration’s simplistic supply-side economic strategy is not working for working Americans.”

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