A DISMAL jobs report has prompted the US government to look for new ways to inject life into a sagging economy, even as the White House and Republicans negotiate potentially drastic government spending cuts.
The US added just 18,000 extra jobs in June, the lowest figure in nine months, exacerbating fears that the nascent recovery is stalling in the face of high petrol prices, knock-on effects from the Japanese tsunami and chronically weak consumer confidence.
The jobs figures raised the stakes in already tense negotiations over an increase in the country’s borrowing limit ahead of a treasury-imposed deadline in early August.
The White House renewed its call for the establishment of an infrastructure bank to invest in roads, bridges and railways.
“There are over a million construction workers out of work after the housing boom went bust, just as a lot of America needs rebuilding,” said US president Barack Obama .
The president’s push for new spending has encountered fierce resistance from Congressional Republicans, who argue previous stimulus efforts failed to create jobs. The weak jobs number sparked a sell-off of US stocks, while bond yields were sharply lower and the dollar rallied. At midday in New York, the SP 500 was down 1.1 per cent. The yield on 10-year treasuries dropped 13 basis points to 3.02 per cent, while the dollar rose 0.4 per cent on a trade-weighted basis. Forecasters had expected job creation in excess of 100,000 positions for June. Thursday’s strong ADP payrolls report had raised hopes that the unemployment situation was improving.
“It means the soft patch is persisting. I guess we jumped the gun and relied too much on ADP,” said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi UFJ.
Private sector job creation was weaker than expected, while the public sector shed 39,000 jobs.
“All of the cuts that states and local governments have made are slowing the economic recovery,” said Michael Leachman, of the state fiscal project at the Center on Budget and Policy Priorities.
The jobs report prompted both political parties to solidify their positions. John Boehner, the Republican House speaker, said “tax hikes on families and job creators” would make the economy worse.
Chuck Schumer, the Democratic New York senator, called for an extension and expansion of the two percentage point cut in payroll taxes enacted last December to be included in the deficit reduction negotiations. While the weak jobs number will reinforce the concerns of Federal Reserve officials about the sustainability of the recovery, the US central bank is unlikely to move towards a third round of “quantitative easing” through asset purchases.
With few policy options left for a quick economic lift, Mr Obama warned Americans that any recovery could be far off: “The economic challenges that we face weren’t created overnight, and they’re not going to be solved overnight.” – (Copyright The Financial Times Ltd 2011, additional reporting by Nicole Bullock and Michael Mackenzie.)
