Weak U.S. job numbers add to push for Fed action
A glum US jobs market report for August on Friday was bad news for President Barack Obama’s reelection fight but raised the likelihood that the Federal Reserve will take fresh action to boost the economy.
The weak economy added a meager 96,000 jobs in August, and the official number of jobless fell by a quarter-million people to 12.5 million.
That helped to bring the unemployment rate down to 8.1 percent from 8.3 percent, the Labor Department said.
But behind that seeming positive data was a more ominous change: some 368,000 people gave up searching for jobs and left the labor force, leading to a substantial net rise in the total number of working-age Americans out of work.
The number of people actively seeking jobs, and others who say they want work but are not searching, rose to 19.5 million after falling for much of the year.
The data appeared to confirm worries expressed by Fed Chairman Ben Bernanke last week, when he called labor market stagnation “a grave concern.”
“Persistently high levels of unemployment will wreak structural damage on our economy that could last for many years,” he warned.
Economists concluded that Friday’s data makes it more likely that the Fed will act anew to help growth when its policy board meets on Wednesday and Thursday.
The Federal Open Market Committee could strengthen its declared commitment to its near-zero interest rate, easy-money stance, or possibly go as far as approving a third round of quantitative easing (QE) bond purchases.
“Given Bernanke’s speech last week, the Fed is likely to either launch a third round of QE or extend its commitment to zero rates into 2015,” said John Ryding and Conrad DeQuadros at RDQ Economics.
US stock markets took the data as good news — that it will lead to lower interest rates — and ended at fresh multi-year highs: the Dow added 0.1 percent, and the S&P 500 0.4 percent.
The dollar meanwhile dropped 1.2 percent to nearly $1.28 against the euro, and bond yields slipped as well, with the 10-year Treasury falling to 1.66 percent.
Although the headline unemployment rate improved, the details of the data showed that Obama’s efforts to boost jobs, which had showed results in 2010-2011, have stalled since the end of last year.
The August jobs growth number of 96,000 was well below the monthly average so far this year of 139,000, which is significantly less than the average monthly gain of 153,000 last year.
The labor force participation rate — the percentage of the working-age population either working or searching for a job — fell to its lowest level since 1981: 63.5 percent.
In addition, the duration of unemployment for those looking for jobs — a key worry of Bernanke — was little-changed, with 40 percent still searching for work for 27 weeks or more.
The data showed the US private sector remains reticent or unable to hire, while the public sector continues to pare staff.
Many businesses are worried about the ongoing financial crisis in the eurozone, the sharp slowdown in China, and the US political stalemate over economic policy ahead of the November 6 election.
A particular worry, businesses say, is the “fiscal cliff” — the law that, if unchanged, will force steep spending cuts and tax hikes beginning January 1 that economists say would send the country back into recession.
The National Association of Manufacturers said the chief worry of most of its members is the looming fiscal cliff.
“The number of manufacturers who have a negative outlook on the future of their business doubled in the past three months,” the group said Friday.
“Any meaningful action on the approaching fiscal abyss has stalled, and manufacturers are feeling the effects,” it said.
“Unless policymakers shelve the rhetoric, roll up their sleeves and take action to end the unfavorable business climate that manufacturers face today, we will see our jobs crisis continue and economic growth grind to a halt.”
The economists at RDQ echoed that, suggesting that a QE3 program might have little real impact.
“There is, however, considerable uncertainty on the outlook for the taxation of labor and capital in 2013, which we think is the major challenge for the economy over the remainder of this year.”