Disappointing US employment data

THE US economy created a disappointing 96,000 jobs in August, compared with expectations of 130,000, a number likely to remove any final doubts the US Federal Reserve has about further monetary easing.

Figures for June and July were both revised downwards, showing a complete lack of momentum in the US labour market, but the unemployment rate fell from 8.3 to 8.1 per cent as participation in the labour force hit its lowest level since 1981.

The number may dampen any political momentum President Barack Obama gained from his Democratic convention speech last night and give his Republican rival, Mitt Romney, new scope to attack on the economy. “Lack of demand together with concern about declining profits makes it difficult to generate new jobs at a faster pace,” said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board. “These conditions could easily stretch into the early months of 2013.” Average monthly jobs growth this year has been 139,000 compared with 153,000 in 2011, leading Fed chairman Ben Bernanke to warn last month the stagnation is a “grave concern”.

In the minutes of its last meeting, the Fed said most members were inclined to act unless there was a “sustained and substantial strengthening” in the pace of growth. With the numbers weakening, they are highly likely to act next week, probably with a third round of quantitative easing.

“The August US labour report is weak throughout,” said James Knightley at ING in London. “As a result, this puts QE3 firmly back on the agenda at next week’s FOMC meeting.”

There was little encouragement to be found in the report with most details adding to the picture of weakness. The June and July revisions knocked 41,000 off total jobs, average hourly earnings fell a little, and temporary help jobs – seen as an indicator of future permanent hiring – fell by 4,900.

Manufacturing jobs declined by 15,000, showing the effects of the euro zone crisis and a developing country slowdown on what has been a bright spot for the US recovery, while construction posted a feeble gain of 1,000. Such jobs growth as there was came from business services, up 28,000; healthcare, up 21,700; and leisure and hospitality, up 34,000 jobs.

“This weak employment report, in jobs, wages, hours worked and participation is probably the last piece the Fed needs before launching another round of quantitative easing next week,” said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

Mr Obama said the labour market was not hiring workers fast enough: “We need to fill the hole left by this recession faster.”

Economists blame fears of the so-called US fiscal cliff – the $500 billion or so in expiring tax cuts and government spending reductions set to take hold at the start of next year unless Congress acts – and Europe’s debt problems – for the jobs slowdown. – (Copyright the Financial Times Limited 2012 /Reuters)