A worker monitors equipment at a plant that makes saw blades in Illinois.… (Tim Boyle, Bloomberg )
WASHINGTON — U.S. manufacturers have been a key source of job growth in the slow economic recovery. But the factory doors slammed shut last month to new hires, creating another barrier to bringing down the high unemployment rate.
With the European recession helping reduce demand for U.S. exports, the pace of manufacturing job growth has slowed in recent months. The steam disappeared from the manufacturing sector in August amid increasing anxiety by factory owners about tax increases and large government spending cuts looming next year.
The Labor Department reported Friday that the U.S. shed 15,000 manufacturing jobs last month, a factor in the disappointing creation of 96,000 jobs overall. This marked the first month of job loss in the sector in nearly a year and the worst performance in two years.
Since the labor market began turning the corner at the start of 2010, the U.S. added more than 500,000 manufacturing jobs — about 1 of every 8 jobs created. President Obama frequently touts the growth, but the August data raised doubts about the new goal he laid out of adding an additional 1 million of these jobs over the next four years.
"Manufacturing has really come to a bit of a standstill at this point," said Chad Moutray, chief economist for the National Assn. of Manufacturers.
If manufacturing continues its recent struggles, economists are unsure what areas of the economy will make up the difference needed to pull unemployment below its August level of 8.1%. Hiring has picked up in restaurants and bars, which added 28,300 jobs last month. The economy also added 26,800 jobs in professional and technical services, such as computer systems design.
And economists hoped the recent upswing in home prices nationwide would spur hiring in construction and other housing-related industries. But that has yet to happen. In fact, residential construction lost 1,100 jobs in August after gaining 5,000 in July.
"Clearly, there's caution not only in housing but across the economy" when it comes to hiring, said Gary Schlossberg, senior economist with Wells Capital Management.
The caution has hit hard in the manufacturing industry, where higher-paying jobs are a key to a stronger recovery.
The sector added 512,000 jobs since January 2010, reversing a downward trend that began in the late 1980s. Manufacturing was really roaring from December through March, when the industry added an average of 38,000 jobs a month.
But that pace has slowed dramatically over the last five months, with an average of just 7,600 manufacturing jobs added.
The slowdown came with the acceleration of Europe's debt crisis, which pushed that region into recession and helped reduce economic growth around the world. Exports are vital to U.S. manufacturers, so the global slowdown is a particular challenge for the industry, said Jan Eberly, the assistant Treasury secretary for economic policy.
Mark Zandi, chief economist with Moody's Analytics, said lower sales have caused factory inventories to build up, leading manufacturers to reduce their production and hiring.
"U.S. manufacturers just aren't selling as much stuff overseas," he said. "Once they get their inventories back to where they want them, we'll see more production."
The August manufacturing job loss could be largely a statistical anomaly caused by the Labor Department's seasonal adjustments, economists said.
More than half of the 15,000 job losses came from the auto industry. But that industry, bolstered by strong sales, laid off fewer workers in July for the usual summer retooling of auto factories. The reduced layoffs helped artificially boost July's seasonally adjusted manufacturing job creation to 23,000, and likely artificially deflated August's figures because there were not as many auto workers rehired as at the end of a typical summer.
Still, the trend lines have been down for manufacturing, according to various industry gauges. For example, the Institute for Supply Management said this week that its index indicated the sector contracted in August for the third straight month.
Slower growth abroad has combined with fiscal problems in the U.S. looming at year's end, when the George W. Bush-era tax cuts are due to expire and $1.2 trillion in federal budget cuts over the next decade could start to take effect.
Those tax increases and spending cuts, which will happen automatically unless Congress and the White House agree to stop them, are known as the fiscal cliff. Economists have warned the combination could trigger another recession.
A recent survey by the National Assn. of Manufacturers found more than 78% of respondents said the fiscal cliff was their main concern, and the number who had a negative view of their businesses' future had doubled in the last three months. Moutray said the concern is particularly high among manufacturers of military equipment because about half of the $1.2 trillion in automatic spending cuts would come from the Pentagon.
"The reality is manufacturers have long time horizons. They're already starting to plan for 2013 and beyond, and this level of uncertainty that is out there is hampering growth," he said. "The slowing global economy is not helping, but Washington is not helping either."
He and others said Obama's goal of 1 million new manufacturing jobs is reachable, but it would require a resolution of the fiscal cliff issues and a quick pickup in job creation. The industry has about 12 million employees now.
But with Europe still struggling to restore growth and a bitterly divided Washington pushing the tax and spending decisions off until after the November election, manufacturing is facing at least several more months of slow growth, economists said.
"It's not lights out for manufacturing, but certainly manufacturing is going to have its own challenges over the next six months," said Chris Rupkey, chief financial economist for the Bank of Tokyo-Mitsubishi in New York.