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Employers might have turned cautious last month as the economy slowed. And the downgraded job totals for June and July reflected a loss of government jobs that was likely related to federal spending cuts. The economy grew at a 2.5 percent annual rate from April through June. Many economists think that is slowing to a rate below 2 percent in the July-September quarter. Government job cuts were much steeper in June and July than previously estimated. They accounted for about half the reduction in job growth for those months. The federal spending cuts likely also contributed to job cuts by defense contractors, said Diane Swonk, chief economist at Mesirow Financial. Many defense contractors are included among manufacturers. And manufacturing jobs were revised lower by a combined 26,000 in June and July, more than offsetting August's gain. Hiring in construction has slowed drastically from earlier in the year despite the housing recovery. The construction industry has added an average of just 2,500 jobs a month in the past six months. That compares with an average 25,500 gain in the previous six months. The percentage of adults working or looking for work, known as the participation rate, fell to 63.2, the lowest since 1978. The participation rate for men, which has been declining gradually, fell to its lowest point on records dating to 1948. Doug Handler, chief U.S. economist at IHS Global Insight, said the decline in male participation rate suggests that many men who once worked in areas such as manufacturing and construction are giving up on finding work rather than transitioning to another industry. "It seems they feel that they're never going to get another job in their sector or in any other sector," Handler said. Still, some economists suggested that an increase last month in hours worked and average hourly pay provided important boosts to Americans' pay and could support stronger consumer spending in coming months. Average hourly earnings rose 5 cents to $24.05. Hourly pay has risen 2.2 percent in the past 12 months. That's slightly ahead of the 2 percent inflation rate over the same period. The average hourly work week ticked up to 34.5 from 34.4, a sign that companies needed more labor. That can lead to larger paychecks. But the persistently sluggish pace of hiring will likely be the key factory the Fed will weigh at its policy meeting this month. And few expect any aggressive pullback by the central bank. "The current pace of job growth does not quite take tapering off the table, but it does suggest the Fed will use a lighter touch," said James Marple, at TD Economics.
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