THE SIZE of the US labour force has shrunk since May by 625,000, the largest monthly fall since 1995, as fears that the US recovery may be fizzling out took hold.
The labour force measures the number of people in work or actively looking for employment, making it an important measure of confidence in the economy.
US jobs data which was released yesterday showed that businesses created a modest 83,000 new jobs in June.
The government report disappointed economists and confirmed that the US labour market has lost significant momentum since April, when private payrolls grew by 241,000.
The tepid pace of private-sector job creation is a significant setback for the Obama administration and congressional Democrats heading into the November midterm elections, where the health of the economy is expected to be at centre-stage.
Overall, the US economy lost 125,000 jobs last month, but that drop was the result of the mass lay-off of temporary workers hired by the government for the 2010 census.
President Barack Obama attempted to put a brave face on the data yesterday. “Make no mistake, we are headed in the right direction,” he said at Andrews Air Force Base in Maryland.
But he added: “We continue to fight headwinds from volatile global markets, so we still have a great deal of work to do to repair the economy and get the American people back to work.”
Republicans quickly seized on the data as a sign that the administration’s economic policies were not working.
On the surface, one bright spot in yesterday’s report was the decline in the unemployment rate, which fell from 9.7 per cent in May to 9.5 per cent last month – its lowest level since July 2009.
Economists were quick to point out though that the fall was driven by the fact that the labour force overall shrunk by 652,000 people last month. Economists insisted that the labour market did not appear to be in danger of falling off a cliff, but was simply recovering at a more sluggish clip than many predicted a few months ago.
However, combined with weaker data on housing and manufacturing released this week, the soft data reinforced the view that the US economy was damaged more than initially thought by the turmoil in the financial markets caused by the European sovereign debt crisis, and could struggle to regain its footing in the coming months.
“Without a re-acceleration in hiring, the risk we see is not a double dip but rather that the pace of recovery going forward could be unacceptably slow,” said Michelle Girard, an economist at RBS in Connecticut.
“We do not believe that we are heading for a double-dip recession, but the data are telling us that the economy entered the second quarter with plenty of momentum and exited it with very little,” added Nigel Gault, chief US economist at IHS Global Insight in Massachusetts. – Copyright The Financial Times Limited 2010
