Alison
By Allison Linn Senior writer
msnbc.com
updated 9/2/2011 5:47:06 PM ET 2011-09-02T21:47:06

The news Friday that the economy created zero jobs in August is ominous, but it doesn't necessarily mean we're heading for another recession.

“Most of the releases that came out earlier in the week were a little bit better than generally expected and this one was a little bit worse,” said Mike Montgomery, U.S. macro economist with IHS Global Insight.

Instead, Montgomery said the weak employment report could be yet another sign that the U.S. is continuing to muddle through some serious economic doldrums. That may be better than a recession, but it's still an extremely unpleasant prospect for the many Americans who have been out of work for months or even years.

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The Bureau of Labor Statistics reported Friday that the unemployment rate held steady at 9.1 percent with about 14 million Americans out of work and actively looking for a job.

Story: US economy created no job growth in August, data show

The jobs report came on the heels of recent economic indicators pointing to a troubled — but not necessarily recessionary — economy.

The employment figures were affected slightly by a strike at Verizon, which took 45,000 people off the employment rolls for the month. But another 22,000 workers returned to the employment books because a government shutdown in Minnesota ended.

In a research note Friday, economist Paul Ashworth of Capital Economics noted that the economy has created less than 100,000 jobs for four months straight. On Friday, the government said job creation in June and July also wasn’t as good as they originally thought.

“Even allowing for the disruption of the strike by 45,000 Verizon workers last month, the stagnation in U.S. payroll employment is an ominous sign,” Ashworth wrote in the note.

One big problem is that employers should be hiring more workers just to keep pace with the number of new workers who come into the job market each month.

“Our real sort of zero in the labor market is more like 90,000 or 100,000 jobs added,” said economist Heidi Shierholz with the liberal-leaning Economic Policy Institute. “That’s what we need to just keep up with population growth.”

Instead, many people appear to be staying on the sidelines. The labor force participation rate — the percentage of people employed and those who are unemployed but seeking a job — is currently at 64 percent, up a tiny bit from July but still very low by historical standards.

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When the recession began in December of 2007, 66 percent of Americans were participating in the labor force.

The weak employment report comes on the heels of other economic news that showed a nation struggling mightily, but not necessarily stalling out.

The Institute for Supply Management reported Thursday that its index of manufacturing activity slid slightly in August but didn’t reach the point of contraction. Initial claims for state unemployment benefits also fell slightly in August, and surprisingly strong new car sales was seen as a positive sign.

Story: Manufacturing sector holding its own amid turmoil

Montgomery, of IHS Global Insight, said there still is reason to worry the U.S. will head back into recession.

Story: Carmakers post solid sales in encouraging sign for economy

“Our forecast basically says that there is about a 40 percent chance, but we haven’t a smoking gun yet that says things are going to hell in a handbasket,” he said. “There’s still a tolerable chance that things could muddle through.”

Shierholz said the weak employment report certainly increases fears that the nation could be heading back into recession. But she noted that whether the U.S economic growth rate dips below zero or not, the current rate of economic growth is still quite worrisome.

The National Bureau of Economic Research generally defines a recession as a period of several months or longer in which there is a significant decline in economic activity. Although the nation has been struggling with a weak economy for years, the most recent official recession only lasted from December of 2007 until June of 2009, according to the NBER.

The Commerce Department said last week that gross domestic product rose at an annual rate of just 1 percent .

“With that growth rate we will never get out of this mess,” Shierholz said.

Dean Baker, economist with the Center for Economic and Policy Research, called the data bleak.

“This report shows an economy that is growing, but at a very slow pace. It is not even creating sufficient jobs to keep pace with the growth of the labor force,” Baker said in an analysis note.

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