Economy in U.S. Probably Failed to Create Enough Jobs to Cut Unemployment
The U.S. probably failed to create enough jobs in July to reduce unemployment, showing anxiety over government debt deliberations and a slowdown in consumer spending have shaken employer confidence, economists said before reports this week.
Payrolls climbed by 90,000 workers after an 18,000 increase in June that was the smallest this year, according to the median forecast of 62 economists surveyed by Bloomberg News before a Labor Department report Aug. 5. The jobless rate held at 9.2 percent after rising in each of the previous three months.
The lack of jobs threatens to further reduce consumer spending, raising the risk the economic recovery will come to a halt. The inability to reach an accord raising the debt ceiling and unexpectedly weak growth in the first half of 2011 caused the Standard & Poor’s 500 Index to drop 3.9 percent last week, the most in a year.
“The whole uncertainty we’re seeing right now is going to keep firms cautious and households cautious,” said James Knightly, a senior economist at ING Bank NV in London. “It’s unlikely anybody is going to go on a hiring binge in that environment. The risk is we see ongoing softness.”
Private payrolls, which exclude government jobs, rose 115,000 after a gain of 57,000 in the prior month, economists forecast the employment report will also show.
The economy grew at a less-than-forecast 1.3 percent pace in the second quarter following revised growth of 0.4 percent in the first three months of the year that was less than previously estimated, the Commerce Department reported last week. Consumer spending grew 0.1 percent, the smallest gain since the second quarter of 2009, the final months of the recession.
The projected gain in payrolls would bring the average from May through July to 44,000, down from 215,000 in the previous three months.
Increases of around 125,000 a month are needed to keep the unemployment rate steady, while about 200,000 a month would bring it down a percentage point over a year, according to Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.
Through June, the economy had recovered about 1.77 million of the 8.75 million jobs lost as a result of the 18-month recession that began in December 2007.
In his semi-annual testimony to Congress earlier this month, Federal Reserve Chairman Ben S. Bernanke said the “economy still needs a good deal of support.”
“The most recent data attest to the continuing weakness of the labor market,” Bernanke said the July 13. “It’s improving very slowly in terms of jobs regained. Wages are very stagnant and that’s affecting consumer spending and consumer confidence. There is also ongoing uncertainty about the durability of the recovery.”
The drop in shares last week was accompanied by a surge in Treasury securities. The yield on the benchmark 10-year note dropped to 2.80 late on July 29, the lowest since Nov. 30.
Some companies are firing workers to keep costs down as the economy slows and uncertainty builds over the debt ceiling, European default risk and regulatory and tax costs.
Cisco Systems Inc. (CSCO), the largest networking-equipment maker, plans to eliminate about 6,500 jobs, or 9 percent of its full- time global workforce, to help trim $1 billion in annual costs and step up profit growth.
The job cuts will come from across the company and aren’t concentrated in a single unit, said Karen Tillman, a company spokeswoman, in an interview July 18. The company said affected workers in the U.S. and Canada will be notified this week.
Manufacturing, a stalwart of the expansion, grew at a slower pace last month, a report may show tomorrow. The Institute for Supply Management’s factory index fell to 54.5 from 55.3 last month, according to a Bloomberg survey of economists. A reading higher than 50 signals growth.
Factory orders fell 0.8 percent in June after a 0.8 percent gain the prior month, economists forecast the Commerce Department will report on Aug. 3.
Services industries, which cover about 90 percent of the economy, expanded at a faster pace, a report may show the same day. The ISM’s index of non-manufacturing businesses rose to 53.7 in July from 53.3 a month earlier, according to the Bloomberg News survey.
Bloomberg Survey ============================================================ Release Period Prior Median Indicator Date Value Forecast ============================================================ Construct Spending MOM% 8/1 June -0.6% 0.1% ISM Manu Index 8/1 July 55.3 54.5 Pers Inc MOM% 8/2 June 0.3% 0.2% Pers Spend MOM% 8/2 June 0.0% 0.1% Vehicle Sales Mlns 8/2 July 11.4 11.8 ADP Payroll ,000’s 8/3 July 157 100 ISM NonManu Index 8/3 July 53.3 53.7 Factory Orders MOM% 8/3 June 0.8% -0.8% Initial Claims ,000’s 8/4 23-Jul 398 405 Nonfarm Payrolls ,000’s 8/5 July 18 90 Private Payrolls ,000’s 8/5 July 57 115 Manu Payrolls ,000’s 8/5 July 6 10 Unemploy Rate % 8/5 July 9.2% 9.2% ============================================================
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