Recession Concerns Ease on August Jobs Data
Companies in the U.S. added more jobs than forecast in August, easing concern the world’s largest economy is sliding back into a recession.
Private payrolls climbed 67,000 after a revised 107,000 increase in July that was more than initially estimated, Labor Department figures in Washington showed today. The unemployment rate rose to 9.6 percent as more people looked for work. A separate report showed service industries expanded more slowly than estimated.
Stocks climbed around the world and U.S. Treasuries slumped as the employment report bolstered Federal Reserve Chairman Ben S. Bernanke’s view that the conditions are in place for a pickup in growth in 2011. While companies such as Caterpillar Inc. are boosting staff as the global economy recovers, payrolls are expanding too slowly to bring down an unemployment rate hovering near a 26-year high.
“The worst fears were not realized, but it’s still not good enough,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, whose forecast for a 60,000 increase in private payrolls was among the most accurate in a Bloomberg News survey of economists. The median forecast called for an increase of 40,000.
The Standard & Poor’s 500 Stock Index rose 1.3 percent to 1,104.51 at the 4 p.m. close in New York. The MSCI World Index of stocks in 24 developed markets added 1.2 percent. Ten-year Treasury yields climbed to 2.71 percent from 2.63 percent late yesterday.
“The double-dip talk was probably misplaced,” said Maury Harris, chief economist at UBS Securities LLC in New York. “From a historical perspective, things are still soft. The economy ought to be doing better.”
Today’s data, together with another report this week showing manufacturing expanded faster than forecast in August, reduces the odds that the Federal Open Market Committee will ease policy at its next meeting on Sept. 21, economists said.
“There is less reason to be concerned about the trajectory of the economy in the very near term, but labor market trends remain weaker than the Fed is willing to tolerate in the long run,” said Louis Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Continued stagnation will exhaust the Fed’s patience at some point.”
President Barack Obama said there is “no quick fix” for the economy and promised to lay out new ideas next week to boost growth and hiring. The president, speaking at the White House, urged Congress to pass a package of measures to help small businesses, including tax breaks and aid to ease credit.
“I will be addressing a broader package of new ideas next week,” he said. The economy is moving in “the right direction; we just have to speed it up.”
The White House is considering payroll tax relief to encourage new hiring, a permanent extension of the research and development tax credit and other business tax breaks as well as more infrastructure spending, according to people familiar with the discussions.
Public opinion polls show jobs and the economy are top concerns among voters two months before November congressional elections in which the Democrats are at risk of losing their majorities in the House of Representatives and the Senate.
Obama’s approval ratings have slipped and support for the Republican Party has grown during the summer months amid signs the economy was cooling. A USA Today/Gallup Poll completed Aug. 30 found Americans believe Republicans in Congress would do a better job on the economy than Democrats, by 49 percent versus 38 percent plurality.
Projections of 55 economists for private payrolls ranged from a drop of 12,000 to a 120,000 increase. The government revised the July headcount from a prior estimate of a 71,000 gain. Economists surveyed projected the jobless rate would rise to 9.6 percent from 9.5 percent in July.
Overall employment, including government agencies, fell 54,000 for a second month, compared with a median forecast for a decline of 105,000 in the Bloomberg survey. The decrease reflected a 114,000 drop in temporary workers hired by the government to conduct the 2010 census.
Manufacturing payrolls decreased by 27,000 after gaining 34,000 the previous month. The median forecast called for a 10,000 increase.
“We’re always cautious about hiring, because we want to be absolutely certain that this isn’t some temporary growth that we see,” George Buckley, chief executive officer at 3M Co. said in an interview on Bloomberg Television from Cernobbio, Italy, earlier today. St. Paul, Minnesota-based 3M is a maker of 55,000 products from dental implants to Post-It Notes.
Peoria, Illinois-based Caterpillar, the world’s largest construction equipment maker, said last month it may add as many as 9,000 workers worldwide this year as sales climb in developing markets.
Employment at service-providers decreased 54,000 in August. Construction companies added 19,000 workers, the first gain in four months, and retailers cut 4,900 workers.
The government’s estimate for the net number of jobs created by new companies and those lost due to firms going out of business added 115,000 to the payroll count last month before the figures were adjusted for seasonal variations. The gain was 7,000 more than the average August increase over the past five years.
Service industries expanded in August at the weakest pace in seven months, a report from the Institute for Supply Management showed today.
The group’s index of non-manufacturing businesses, which covers about 90 percent of the economy, fell to 51.5 from 54.3 in July. Readings above 50 signal growth and economists projected a decline to 53.2, according the median estimate in a Bloomberg survey.
The 723,000 increase in payrolls in the eight months through August shows it’ll take years to recoup the 8.4 million jobs lost during the recession that began in December 2007, the biggest employment slump in the post-World War II era.
Northrop Grumman Corp. is among manufacturers cutting jobs. The Los Angeles--based company’s shipbuilding unit last month announced 292 reductions, with plans to slash another 350 by the end of the year, and United Technologies Corp.’s Pratt & Whitney jet engine unit will trim 129 hourly employees in Connecticut.
Unemployment, which reached a 26-year high of 10.1 percent in October, will average more than 9 percent through 2011, according to a Bloomberg survey.
“The painfully slow recovery in the labor market has restrained growth in labor income, raised uncertainty about job security and prospects, and damped confidence,” Bernanke said in a speech in Jackson Hole, Wyoming, on Aug. 27.
State and local governments are cutting payrolls in the face of mounting budget deficits. Government payrolls decreased by 121,000 last month, today’s report showed. State and local governments reduced employment by 10,000, while the federal government lost 111,000 jobs.
The unwinding of census employment distorts the payroll figures for months as the government dismisses workers as the count winds down. For that reason, economists say private payrolls, which exclude government jobs, are a better gauge of the state of the labor market.
Average hourly earnings rose 0.3 percent to $22.66 from $22.60 in the prior month, today’s report showed. The average work week for all workers held at 34.2 hours.
The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 16.7 percent from 16.5 percent.
The report also showed long-term unemployment dropped. The number of people unemployed for 27 weeks or more fell as a percentage of all jobless to 42 percent from 44.9 percent.