Thread: Dismal employment figures cap a grim month for US economy

Dismal employment figures cap a grim month for US economy

Some are calling it a 'soft patch' – but the increase in the US jobless rate could be evidence a storm is brewing

Larry Elliott, economics editor
guardian.co.uk, Friday 3 June 2011 16.07 BST
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US Federal Reserve chief Ben Bernanke is in no hurry to slash spending while the US economy is still showing so many signs of weakness. Photograph: Jason Reed/Reuters

A bombed-out real estate market. Weak consumer spending. A squeeze on real incomes. Now a dismal report on the labour market. This is turning into a grim month for the US, where there is now a clear danger of what was already a feeble economic recovery running into the sand. Perhaps the most worrying feature of the non-farm payrolls figures was that the weakness of jobs growth came as little surprise.

Earlier this week, Wall Street had pencilled in an increase of around 200,000 in non-farm payrolls last month, but the forecasts had already been revised downwards before it was revealed that the net increase in employment in May was just 54,000. The US needs to boost payrolls by at least 100,000 a month just to prevent unemployment going up, and the jobless rate edged up again to 9.1%.

Some economists describe this as a "soft patch", arguing that the current weakness is a temporary deviation from an upward trend. The Conference Board said the economy was displaying signs of "choppiness". That's one of putting it.

Those who think this is "choppiness", rather than evidence of a storm brewing, say that the key to jobs growth is the private service sector, where demand for labour is currently poor due to the squeeze on consumer incomes caused by rising gasoline prices. The price of oil is now falling, which should give consumers more money to spend on goods and services.

In addition, Wall Street has responded to signs of tepid growth by pushing back the timing of any tightening of monetary policy from the Federal Reserve until deep into next year. That has pushed bond yields lower, making the cost of financing mortgages cheaper.

As a result, so this line of thinking goes, the second half of 2011 will be better. Even the 5,000 drop in manufacturing employment can be explained away by the supply-chain problems caused by the Japanese earthquake and tsunami. The American jobs machine will splutter back into life over the next few months.

The fact is, though, that the "American jobs machine" – a feature of previous economic recoveries - has been noticeable by its absence since growth reached a trough in early 2009. That's despite the Federal Reserve and the US treasury using every conventional weapon at their disposal – and one or two unconventional ones as well – to get unemployment down to the 5%-6% range.

So what conclusions can we draw from today's figures? The first is simple. The US has had very little bang for the buck from an unprecedented package of economic stimulus.

Second, the debate between those in favour of more policy easing versus those supporting policy tightening has tilted in favour of those who say the Fed should be wary of pushing up interest rates and should be mulling the possibility of a third dose of quantitative easing.

A few months ago, the bond market vigilantes fretting about the risk of higher interest rates as a result of the budget deficit were in the ascendancy. But as Paul Krugman noted this week, the yield on the benchmark 10-year treasury bill is below 3% while unemployment is at 9%. The White House is going to be in no hurry to bow to Republican demands to slash spending in those circumstances.

Finally, there's a conclusion for the UK. If the US is doing this badly after all that stimulus, what does it say for Britain's prospects, where fiscal policy is being tightened aggressively? History suggests that what happens in the US happens here with a lag of around six months.

http://www.guardian.co.uk/business/2011 ... grim-month

US jobs figures cast fresh doubts about global recovery

Fears rose for the strength of the global recovery, after jobs figures from the US capped off a week of alarming data.


Job seekers register and pick up job vacancy fliers from potential employers in Los Angeles Photo: GETTY By Emma Rowley, and Philip Aldrick

7:31PM BST 03 Jun 2011
70 Comments

The unemployment rate in the world's biggest economy climbed 0.1pc to 9.1 pc in May, while the number of jobs showed its smallest rise in eight months. Just 54,000 were added to payrolls for non-agricultural work - some 100,000 fewer than forecast.

The Dow Jones, the US benchmark share index, fell more than 140 points to just over 12,100 at one point as Wall Street digested the latest disappointment, while the dollar hit a record low against the Swiss franc, seen as a "safe haven" currency. However, the Dow recovered in late trading to 12,205.19 , down 43.36.

Investors had already seen a leading US manufacturing survey this week fall to its lowest level since September 2009 and a second credit rating agency threaten to put the country on review for a possible downgrade of its rating, unless politicians agree to raise its legal debt limit.

"The greater surprise is not the US slowdown was unexpected, but rather that it was so pervasive - reflected in housing, labour, manufacturing and consumer spending data," said Michael Woolfolk, managing director at BNY Mellon Global Markets.

Analysts have blamed the softness in the US economy on high energy prices, supply chain disruptions following the Japanese earthquake and tornadoes and flooding in some states.

Austan Goolsbee, US president Barack Obama's chief economist, told Bloomberg the jobs report marked a "little bump" in the road to recovery and warned against reading too much into one month's figures.

"Markets have been jittery for some weeks now amidst concerns about global growth, and the shortfalls seen in today's release are likely to exacerbate this - especially when looked at in conjunction with weak indicators elsewhere in the developed world," said Scott Corfe at the Centre for Economic and Business Research (CEBR). "The West looks set for a difficult year."

In line with this warning, analysts said data also out on Friday for the massive British services sector suggested that the UK's growth may have slowed in the second quarter of this year.

Activity in the sector grew at its slowest pace in three months in May, according to the closely-watched Markit/CIPS purchasing managers' index (PMI) which eased from 54.3 in April to 53.8 last month - the lowest reading since February and below forecasts of 54.1.

The slowdown was blamed on the sector's exposure to hard-pressed British consumers, who are seeing their incomes squeezed by higher transport and energy bills and are unwilling to finance their spending by increasing their debt.

With the full set of PMIs – for services, manufacturing and construction – now out for the first two months of the current quarter, the CEBR predicted the UK economy's growth rate from April to June will be lower than the 0.5pc seen in the previous quarter.

Economists again pushed back expectations of when interest rates will rise, judging that the recovery's fragility rules out a move any time soon.

However, the pound rose against a weak dollar, closing just over a quarter of a cent higher in London at $1.6362.

http://www.telegraph.co.uk/finance/econ ... overy.html