U.S Employment Stagnated in August
Employment in the U.S. unexpectedly stagnated in August, increasing pressure on Federal Reserve Chairman Ben S. Bernanke and President Barack Obama to spur an economy that’s barely growing two years into the recovery.
Payrolls were unchanged, the weakest reading since September 2010, the Labor Department said today in Washington. The median forecast in a Bloomberg News survey called for a gain of 68,000. The figures included a 48,000 drop in the information industry, mostly reflecting a strike at Verizon Communications Inc. (VZ) The jobless rate held at 9.1 percent.
“This is further evidence that the economy is very close to stalling if not having stalled,” said Nariman Behravesh, chief economist at IHS in Lexington, Massachusetts, who forecast a gain of 15,000. Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., called the report “grim and scary” in an interview on Bloomberg Television’s “In the Loop” with Betty Liu.
Stocks slumped and Treasuries rallied on bets the data raise the odds of another recession. Earnings and hours worked both declined, today’s report showed, reducing the purchasing power of consumers whose spending accounts for 70 percent of the world’s largest economy.
“We’re calling for a mild recession at this point,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “We’ll see QE3 definitely,” she said, referring to a third round of large-scale asset purchases by the Fed. “It helps put a floor under the economy and stabilize things.”
The Standard & Poor’s 500 Index fell 2.5 percent to 1,173.97 at the 4 p.m. close in New York. The yield on the benchmark 10-year note dropped to 1.99 percent from 2.13 percent late yesterday.
The report raises the political stakes for Obama as he prepares to address a joint session of Congress next week. An unemployment rate stuck near 9 percent has helped push Obama’s disapproval rating to an all-time high, according to a Quinnipiac University Aug. 16-27 poll of 2,730 registered voters. Some 52 percent disapprove of Obama’s job performance, up from 46 percent in July.
Gene Sperling, director of the White House National Economic Council, said Obama will propose tax and spending initiatives that will have a “significant” impact.
“There’s no question we need stronger jobs growth, stronger growth overall,” Sperling said today in a Bloomberg Television interview.
Among the steps Obama has been considering are more infrastructure spending, tax incentives to spur hiring, a reduction in the employer portion of the payroll tax and changes to unemployment insurance to subsidize worker retraining, according to people familiar with discussions.
Obama’s options will be limited by opposition to increased spending from Republicans in Congress.
“I’m not sure what the administration can do at this point,” said Gus Faucher, director of macroeconomics at Moody’s Analytics Inc. in West Chester, Pennsylvania. “I think any full-bore stimulus is dead in the water.”
The Office of Management and Budget said in an update of its economic forecasts through August that the jobless rate will average 9.1 percent in 2011 and show little change next year with an average of 9 percent. It won’t fall below 6 percent until 2016, the OMB said.
Political squabbling over the budget and mounting fear of a default in Europe caused the S&P 500 to plummet 17 percent from July 22 to Aug. 8, prompting companies and consumers to cut back. The lack of hiring is one reason Bernanke last week said the central bank still has tools available to stimulate growth.
The Fed ended a $600 billion bond-buying program in June and last month said it would keep its benchmark interest rate near zero at least through the middle of 2013, adding a specific time-frame to its low-rate pledge for the first time.
Further options for the Fed include extending the maturity of Treasury securities in its $1.65 trillion portfolio to push down long-term interest rates, purchasing more Treasuries, or expanding the range of securities it buys, El-Erian said.
Estimates of the 86 economists surveyed by Bloomberg for payrolls ranged from a decline of 20,000 to a 160,000 increase. The unemployment rate was projected to hold at 9.1 percent, according to the survey median. The July gain in payrolls was revised down to 85,000 from 117,000.
The economy expanded at a 1 percent pace in the second quarter following a 0.4 percent gain in the first three months of the year, the Commerce Department reported last month. Consumer spending grew 0.4 percent, the smallest increase since the last three months of 2009.
“The macroeconomic environment has remained difficult for consumers who continue to face high unemployment rates, high gasoline and high food costs,” Rick Dreiling, chairman and chief executive officer at Dollar General Corp., said on an Aug. 30 teleconference with analysts. The Goodlettsville, Tennessee- based company is the biggest dollar discount chain in the U.S.
Sustained payroll increases of around 150,000 a month are needed to bring unemployment down about half a percentage point over a year, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “200,000 is the speed the economy needs to really cut into the jobless rate,” he said.
Still, today’s jobs report could be “a one-off event tied to the financial-market turbulence in early August,” Rupkey said. He said it would take three months of job losses to signal a recession.
A separate survey of households showed the number of employed people increased by 331,000. The share of the eligible population holding a job climbed to 58.2 percent from 58.1 percent.
The same survey showed the number of Americans working part-time for economic reasons increased by 430,000, a sign employers may be only willing to take on part-time help for now so they don’t have to pay as many benefits and can easily reverse course if the outlook worsens.
Government payrolls decreased by 17,000 in August. Employment at state governments rose by 5,000, even after the end of a partial shutdown of the Minnesota government returned about 23,000 workers to their jobs. Local government employment slumped 20,000.
Private hiring, which excludes government agencies, climbed 17,000 last month, the smallest increase since a decline in February 2010. The median forecast in the Bloomberg survey called for a 95,000 increase.
Factory payrolls fell by 3,000 in August after a 36,000 gain the prior month. Manufacturing has been a source of strength for the economy, expanding for 25 straight months, according to the Institute for Supply Management.
Employment at service-providers increased 3,000 in August. Construction employment fell by 5,000.
Fares Abderrahmane said he’s been looking for work for three months after losing his job as manager at a clothing warehouse in New York that paid $1,400 every two weeks. He has sent hundreds of online applications, mostly to clothing retailers.
“There’s no response, nothing,” said Abderrahmane, 36, who lives in Brooklyn. “It’s hard to find a job now. Everybody is looking.”
Banks have been among companies announcing the biggest dismissals. Bank of America Corp. (BAC), the biggest U.S. lender, will eliminate about 3,500 jobs this quarter to focus “on what we can control” amid market turmoil, said Chief Executive Officer Brian T. Moynihan on Aug. 19.
The drop in information industry employment reflected a strike of about 45,000 Verizon workers Aug. 7 after their contract expired. They began returning to work Aug. 22 and will be counted as employed in next month’s jobs report. The Labor Department’s survey week includes the 12th of the month.
Average hourly earnings fell 0.1 percent to $23.09, today’s report showed. The average work week for all workers dropped six minutes to 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 16.2 percent from 16.1 percent.
“Economic growth has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment,” Bernanke said Aug. 26 at the Jackson Hole, Wyoming, central bank symposium. “It is clear that the recovery from the crisis has been much less robust than we had hoped.”
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