US STOCKS lost ground yesterday after downgrades of Spain’s and Italy’s credit ratings underscored worries about the European debt crisis, overshadowing better-than-expected US jobs data.
The downgrades by Fitch came before a European summit tomorrow that is aimed at shoring up the region’s financial sector.
Fitch cut Spain’s credit ratings by two notches, just a few minutes after downgrading Italy, saying the intensification of the euro zone debt crisis had had a negative impact on the entire region.
Earlier figures from the labour department showed the US economy added a better-than-expected 103,000 new jobs in September, raising hopes that a “double-dip” recession can be avoided.
August data, which had caused huge alarm when jobs growth came in at zero, was also revised upwards by 57,000 while July’s figure was also increased by 42,000.
Although the unemployment rate held steady at 9.1 per cent, the new data reflects the changing complexion of the US labour market and suggests that there is less likelihood of a second recession in three years. Instead of collapsing after this summer’s federal debt ceiling battle, the jobs market appears to have weakened only gently, making a spiral into recession less likely.
“It’s consistent with the idea that the economy is weak but not collapsing and should allay some recession fears,” said Neil Dutta, US economist at Bank of America Merrill Lynch in New York.
However, the Fitch downgrades saw the Dow Jones industrial average fall 0.46 per cent, the Standard Poor’s 500 Index was down 1.07 per cent and the Nasdaq Composite Index was down 1.3 per cent.
European shares, which closed ahead of the downgrades, rose to a five-week closing high, after the US jobs data.
“Overall the number was a positive, but not enough to trigger an enormous rally,” said Bruce Bittles, chief market strategist at RW Baird, the investment bank.
“There’s still a lot of concern about Europe, the financial markets and political polarisation overhanging the markets.”
The September figures were flattered by 45,000 telecoms workers who went back to their jobs after a strike; they had been subtracted from the total in August. On average, the economy has added roughly 100,000 jobs each month since July.
Even if the US economy is not heading into recession, the slow pace of growth suggests that it remains vulnerable to new shocks, such as the euro zone’s sovereign debt crisis.
Jeff Joerres, head of the staffing company Manpower, said the report chimed with slow but continued hiring by businesses.
The summer decline in jobs growth has weighed heavily on President Barack Obama’s standing, prompting him to introduce a jobs package that includes payroll tax cuts and infrastructure spending.
However signs that the economy is not falling into recession may strengthen Republican opposition to the plan, especially over revenue increases that Mr Obama is proposing in order to pay for it.
“Clearly, we need faster economic growth to put Americans back to work,” said Katharine Abraham, a member of the president’s Council of Economic Advisers. “Today’s report underscores the president’s call for Congress to pass the American Jobs Act.” – (Copyright The Financial Times Limited 2011/Reuters)
