The June jobs data, which saw shares on Wall Street fall sharply in early trading, were compounded by concern expressed by the head of the International Monetary Fund (IMF) over a further deterioration in the global economy.
IMF managing director Christine Lagarde said the outlook had become more worrying as developed and major emerging nations alike show signs of slowing down. Her comments came after the European Central Bank, the Bank of England and China’s central bank all eased monetary policy on Thursday in a sign of the growing alarm over the health of the world economy.
The US labour department said so-called “non-farm payrolls” expanded by 80,000 jobs in June, falling short of forecasts of 90,000 though slightly higher than a revised May reading of 77,000. A monthly figure of 125,000 is needed to keep pace with population growth.
Job creation during the month wasn’t enough to bring down the country’s lofty 8.2 per cent jobless rate and the figures raised concerns that Europe’s debt crisis is affecting US growth. The report, which also saw the oil price dip on fears of a global slowdown, may push the Fed closer to taking action to lower borrowing costs to encourage companies to increase hiring.
Cary Leahey, an analyst at Decision Economics in New York, said the market would see figures “as increasing the possibility that QE3 [quantitative easing] is coming”.
While the figures weren’t disastrous, Jason Conibear of forex specialist Cambridge Mercantile warned that itself may be a bad thing: “Indifferent data is dangerous data, as it can lead to further procrastination among policymakers. Not weak enough, which applies to these numbers, is the weakest of all.”
“These numbers aren’t as bad as they could have been, but neither are they as good. The global economy is in a state of atrophy. It urgently needs one of the major economies to reinject life into it, but none are able to do so.”
Until recently, the US had been a relative bright spot in the global economy, especially in manufacturing.
Most economists still expect lacklustre growth over the rest of 2012 rather than a slip toward recession.
Yesterday’s report also showed some hopeful signs with average hourly earnings rising and the length of the average work week increasing. But economic weakness abroad is seen as a formidable hurdle.
The Fed eased policy further last month, but the recent run of weak data has fuelled speculation the US central bank could deliver more stimulus when its next meeting concludes on 1 August.
Even though June’s pace of hiring was decidedly weak, the Fed might not want to unveil bold new measures now because the real storm could be months down the road.
Meanwhile, Spanish borrowing costs yesterday moved back up to the unsustainable levels reached before last week’s EU summit took measures designed to ease pressure on them. The Spanish government said it will soon pass more reforms aimed at reducing the public deficit and improving the country’s competitiveness.
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