Hoffman, Meyer, Silvia Say Jobs Data Suggest Prolonged Slump

Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, Michelle Meyer, a senior U.S. economist at Bank of America Merrill Lynch in New York, and John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said today’s employment report suggests a long period of labor market weakness lies ahead.

Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, George Goncalves, head of interest-rate strategy at Nomura Holdings Inc., were among others commenting on the report.

U.S. employers added 18,000 workers in June, the fewest in nine months, and the unemployment rate unexpectedly climbed to 9.2 percent, Labor Department figures in Washington showed today.

James Paulsen, chief investment strategist for Wells Capital Management in Minneapolis, in a Bloomberg Radio interview with Kathleen Hays:

“We know we are in a soft patch. We know there are definitive reasons for that like Japan, like weather, like higher mortgage yields, like higher gas prices. But when you are looking at all those same forces, most of them have either stopped being bad or they have reversed and are going to start to becoming positive forces for growth.

“The market message is an interesting one. In the face of these headline numbers, you would think it would be off a lot more. But I think it is looking ahead and saying, yes, we are in a soft patch but we still think it is going to get better.”

Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in a note to clients:

“An unusually aggressive seasonal (adjustment) may explain at least some of the payroll weakness. The June seasonal is always negative (that is, the level of adjusted payrolls is less than the unadjusted level) to offset hiring for summer jobs.

“Had last June’s seasonal been used again, private payrolls would have been +221K.”

Silvia:

“The Fed is going to have to take down its economic projections. It takes any kind of Fed tightening by the end of the year off the table.”

This also puts pressure on President Barack Obama and Congress to reach a debt-reduction deal, he said.

“They may have to consider less spending cuts and less tax increases certainly than two days ago. They have to pass something. The uncertainty in the private sector is so deep that people aren’t hiring.”

Jason Schenker, president of Prestige Economics LLC in Austin, Texas:

“This increases the probability of another round of quantitative easing. We know the probability of fiscal stimulus is much lower. If additional stimulus is required, the Fed may be weighing its options.”

“The public sector job erosion, particularly from state and local governments, is weighing down the jobs recovery. The number of government job losses has been increasing on a monthly basis. The budgetary pressures on local and state governments are likely to lead to additional job losses.”

Hoffman:

“The economy is close to the edge of not necessarily a double dip but a very long, muddy soft spot that is not going to give any relief for the unemployment rate. It certainly means that the jobs machine wasn’t firing in May and June. For two months in a row businesses took their help-wanted signs down.”

Meyer:

“Across the board it was a weak report. The payroll number was lackluster and the household survey was even weaker as unemployment increased as a result of a sharp drop in employment and a decline in the number of people looking for jobs. The recovery is still fragile and growth will continue to be slow. The economy is healing very gradually.”

LeBas:

“Poor job growth essentially stops any growth in consumer spending. This puts a big crimp in the second most important retail season of the year, which is the back-to-school season.

“With these employment numbers, I don’t see a way consumer spending can grow in any meaningful way. The decline in the participation rate is problematic. The number of discouraged workers is on the rise. We have a big group of disenfranchised workers who’ve been unemployed for a long time. The summer jobs report suggests economic expansion is essentially on hold.”

Goncalves:

“Today’s number forces all the bond bears back to the drawing board.”

“This confirms that the data will remain soft and weak.”

David Greenlaw, chief financial economist at Morgan Stanley in New York, in a note to clients:

“The big question at this point is whether the recent employment data represent a lagged response to a soft patch in the overall economy or whether we are seeing a significant underlying deterioration in labor market conditions.

“If the former, then we should see a clear improvement in the jobs figures over the next few months. If the latter, then the sustainability of the economic recovery in the U.S. can be called into question. We still believe that a number of temporary factors point to a pick-up in GDP growth during the second half of 2011.

“But, the extent of that improvement now seems likely to be somewhat less than previously thought given the fading support for income and production evident in the jobs figures.”

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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