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US job losses will be double the expected figure

Barack Obama

6th August 2010

President Barack Obama: the job loss data has fuelled fears that the US economic recovery will not bring about a revival in the job market. Photograph: Pablo Martinez Monsivais/AP

Employers in the US shed twice as many jobs as expected in July, fanning fears that the recovery in the world’s largest economy will not see a revival in employment.

The US government said 131,000 jobs were lost overall, compared with forecasts for a 65,000 fall. The drop was mainly due to work finishing for temporary staff hired by the government to conduct its census. But private hiring was also weaker than expected.

Economists polled by Reuters ahead of the non-farm payrolls data forecast that private sector jobs would rise by 90,000, but in the event only 71,000 were added.

At the same time, June’s overall drop was revised to a far steeper 221,000 from 125,000.

The data sparked a rally in government bonds, seen as safer investments when the economic picture darkens. Crude oil futures dropped on the prospect of weaker demand from the US market and stock indices also fell, including the FTSE 100 in the UK.

“This employment report only reinforces a sluggish recovery. Private sector job and income gains are not weak enough to point to a renewed downturn, nor are they strong enough to suggest the recovery is free of such risk,” said Stephen Gallagher, economist at Société Générale.

Within July’s drop, 143,000 jobs were census staff who were laid off, but there were also a further 59,000 public sector job losses as the US government mirrored its counterparts around the world in tightening budgets. Economists voiced concerns that the private sector outlook was also gloomy, suggesting that Americans will remain wary about their job prospects and do little to power the recovery.

“This is not good news for consumer confidence or spending and will intensify concerns about the pace of the recovery at the Federal Reserve,” said James Knightley economist at ING Financial Markets.

“Given the recent data flow on activity we doubt we will see a surge in private sector employment over the next couple of months, which implies a further fall in total payrolls is probable next month.”

The sharp drop in jobs, which follows news of slowing economic growth in the US, will likely prompt discussions at the Federal Reserve over implementing more quantitative easing – a way of pumping money into the financial system. The central bank’s Federal Open Market Committee (FOMC) meets on Tuesday and Fed chairman Ben Bernanke has already hinted to markets that its programme of asset purchases could be resumed.

“The big picture is unfortunately that the downtrend in US economic growth is once again obvious, and these figures will probably do little to deter the FOMC from ultimately implementing fresh stimulus in the near future,” said Nick Beecroft at Saxo Bank.

“I’d expect them to reinstate a quantitative easing programme – buying either US Treasuries or mortgage-backed securities – either at next week’s meeting, or more likely at the following meeting on September 21.”

Still, there was some comfort for president Barack Obama as he battles to ensure the economic recovery is accompanied by job creation. The unemployment rate held steady at 9.5% in July, defying expectations that it would rise to 9.6%.

But the steady rate reflected the fact that employment fell 159,000 while at the same time 181,000 people left the workforce.

“The fact that so many people are leaving the workforce is not positive in that it suggests people are giving up looking for work due to the lack of jobs,” said Knightley.

View the original article at Guardian

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