Small business hiring slows in August, wages dip

WASHINGTON (Reuters) - Hiring by small businesses slowed in August and employers reduced hours, an independent survey showed on Sunday, suggesting the recent stock market turmoil may have dampened job creation.

Intuit, a payrolls processing company, said small businesses added 35,000 jobs after increasing employment by 40,000 in July.

The survey is based on responses from about 66,000 employers at businesses with fewer than 20 employees that use the Intuit Online Payroll system and covered the period from July 24 to August 23.

"There was plenty of bad news this month and the Intuit small business employment figures show this," said Susan Woodward, the economist who helped to develop the survey. "From this month's numbers, we don't see a new recession, but we don't see a robust recovery either."

A sharp drop in share prices after Standard & Poor's stripping the nation of its top AAA credit rating knocked down consumer and business confidence. Sentiment also soured as the sovereign debt crisis in Europe spread.

There are fears the month's stock market rout could make businesses hesitant to hire new workers.

The government will release its employment report for August on Friday, which will be gleaned for clues on whether the economy is sliding back into recession.

According to a Reuters survey, nonfarm payrolls probably increased 80,000 this month after July's 117,000 gain.

Three of the 62 economists polled predicted a contraction in nonfarm employment this month, citing the erosion of business confidence and a strike by 45,000 Verizon Communications workers during the payrolls survey period.

They cautioned, however, that a drop in August employment should not be interpreted as a sign the economy was back in recession. The economy grew at a 1 percent annual rate in the second quarter after expanding only 0.4 percent in the January to March period.

The average work week for small business employees fell 0.3 percent to 24.9 hours, according to the Intuit survey, while the average monthly salary eased 0.08 percent to $2,649.

"With a soft labor market, employers no longer need to pay more to get help," said Woodward.

This is a worrying trend for consumer spending, which accounts for more than two-thirds of U.S. economic activity. Consumer spending grew at an anemic 0.4 percent annual rate in the second quarter, slowing sharply from 2.1 percent in the first three months of 2011.

(Reporting by Lucia Mutikani; Editing by Dan Grebler)