THE PRESSURE on the US Federal Reserve to ease monetary policy grew yesterday after the labour department reported the private sector created fewer jobs in July than financial markets had expected.
Although the unemployment rate held steady at 9.5 per cent, US businesses created jobs at a pace slower than earlier in the year. Private payrolls increased by 71,000 jobs, compared with a forecast of 90,000.
The additional evidence of a slowing economy disappointed investors. Treasury yields and the dollar were sharply lower, while equities in Europe and the US – as well as commodities, led by oil – slumped.
The weak employment report came ahead of the Fed’s meeting on Tuesday, at which policymakers are expected to consider ways to revive the recovery with a shift in monetary policy.
“The outcome of today’s numbers likely will bring about further stimulus from the Fed, the administration and Congress,” said John Stoltzfus, strategist at Ticonderoga Securities.
With interest rates already close to zero, the Fed will have to execute any monetary stimulus through the management of its balance sheet, which already exceeds $2,300 billion (€1,732 billion).
Although most economists are not expecting any large-scale asset purchases at this stage, the Fed could decide to use the proceeds from its current holdings to buy additional securities.
Overall, the US economy shed 131,000 jobs in July, but that decline was the result of the end of temporary government jobs related to the 2010 census. Private-sector job creation occurred at a faster pace than it did in May and June, but well below its speed in March and April, and barely enough to keep up with population growth.
Meanwhile, the unemployment rate held as the size of the US labour force declined for a third consecutive month.
More encouraging components of the jobs report included the continued strength of manufacturing payrolls and increases in the average workweek as well as hourly earnings, which bullish economists pointed to as signs that companies are on the cusp of a wave of new hires. – (Copyright The Financial Times Limited 2010)
