Sagging consumer confidence probably discouraged already skittish U.S. businesses from stepping up hiring in August, keeping pressure on the Federal Reserve to provide more monetary stimulus to aid the economy.
While the government's closely watched employment report on Friday will likely underscore the frail state of the economy, analysts say the expected hiring slowdown would not be a recession signal given that layoffs are not rising that much.
A strike by about 45,000 Verizon Communications workers will also make a dent in August's nonfarm employment count.
August was a pretty rough month for the economy, said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. We saw financial markets tighten. I think businesses sort of responded by putting hiring on the back burner.
Nonfarm payrolls likely increased by 75,000 jobs, according to a Reuters survey, after rising by 117,000 in July. The Labor Department will release the report at 8:30 a.m. EDT (1230 GMT).
An acrimonious political fight over U.S. debt, which culminated in the downgrade of the country's triple-A credit rating from Standard & Poor's, and a worsening debt crisis in Europe ignited a massive stock market sell-off last month and sent business and consumer confidence tumbling.
Despite the weak employment growth, the jobless rate is expected to have held steady at 9.1 percent as more people gave up the job hunt and dropped out of the official labor force.
With the unemployment rate stuck above 9 percent and confidence collapsing, President Barack Obama is under pressure to come up with ways to spur job creation. The health of the labor market could determine whether he wins a second term in next year's presidential elections .
Obama will lay out a new jobs plan in a speech to the nation on Thursday.
Soft employment data could strengthen the hand of officials at the U.S. central bank who were ready at their August meeting to do more to help the sputtering economy.
The Fed cut overnight interest rates to near zero in December 2008 and it has bought $2.3 trillion in bonds. Many analysts say its arsenal is now largely depleted, although they expect it to do more to try to prop up growth.
The Fed really has a easing bias, said Jeffrey Greenberg an economist at Nomura Securities International in New York. If we have a negative report, those members who wanted to do more at the August meeting will become more vocal.
Although hiring may have cooled, there is little sign companies responded to the darkening outlook by laying off workers. First-time applications for state unemployment benefits have hovered around 400,000 for weeks.
The steady jobless claims, relatively strong consumer spending, continued demand for manufactured goods and increases in industrial production suggest the economy will steer clear of recession.
We do not expect the economy to slump, but rather to slouch and stagger, said Patrick O'Keefe, head of economic research at accounting firm J.H. Cohn in Roseland, New Jersey.
Still, analysts warn that the economy is so weak, any fresh shock could send it tumbling. In the first half of the year, the economy expanded at less than a 1 percent annual rate, bad news for the estimated 13.9 million unemployed Americans.
Payroll growth has averaged 127,000 per month over the first seven months of the year, far less than the 150,000 jobs needed every month to keep the unemployment rate from rising.
If job growth does not accelerate, it could take more than four years to return to the pre-recession employment level.
So far, only about two million of the 8.7 million jobs that were lost during the 2007-09 recession have been recovered.
According to analysts, the private sector should account for all the job gains in August. Private payrolls are expected to rise 105,000.
Government employment is expected to have contracted for a ninth straight month, but the weakness will be tempered by the return of 23,000 state workers in Minnesota after a partial government shutdown in July.
Within the private sector, service-producing industries should show relative strength, although payrolls in the information sector will be hit by the Verizon strike.
Jobs in finance could shrink again, reflecting a recent wave of layoffs in the sector.
Manufacturing job growth is likely to have been curbed by the slump in business confidence. Factories added 24,000 new workers in July as disruptions to motor vehicle production caused by a shortage of parts from Japan eased.