US jobs shocker adds to the growing pressure on Obama

The US labour department said job creation ground to a halt, adding to fears that the world’s largest economy is heading back into recession. There were calls for a greater response from Obama when he makes a key address next week.

It is the first time since February 1945 that the non-farm payrolls measure, America’s main employment indicator, has stood at zero. It was the weakest jobs report for a year and means the US unemployment rate remains at 9.1 per cent.

Markets also had to stomach a downward revision in jobs data for June and July, with the labour department saying 58,000 fewer jobs had been created than previously thought. That means only 111,000 jobs were created in the US over the summer.

It is estimated the economy needs to add roughly 250,000 jobs a month to bring down the unemployment rate significantly.

Scott Corfe, an economist at the Centre for Economics and Business Research in London, said the “abysmal” data was likely to force US Federal Reserve chairman Ben Bernanke into taking action to help the ailing economy, even before the next meeting of the US monetary policy committee on 20 September.

He said: “Today’s release makes for pretty grim reading, with next to nothing in the way of good news about the US labour market.

“With respect to monetary policy, the underlying data now suggest that QE3 [a third round of asset purchases by the Fed] will be hard to stave off. Bernanke cannot afford to wait until the next FOMC meeting on the 20 September before making an announcement on the parlous economic situation.”

He said the US had yet to generate sustained private sector job creation to offset job shedding in the public sector, as it addresses its monumental level of government debt – currently standing at over $14 trillion (£8.4 trillion).

The non-farm payroll data continues to show a downward trend in the number of government employees, which fell by 17,000 in August. Local government in the US has shed some 550,000 jobs since employment in the sector peaked in September 2008.

Wall Street fell after the data was released, with the Dow Jones down more than 2 per cent by the close.

Corfe said Obama could come to regret staking his reputation on jobs recovery ahead of next year’s election

David Miller, partner at Cheviot Asset Management, which has £3.5 billion of assets under management, said: “The figures will heighten political tensions and reinforce the view of markets that lack of growth is the problem. Markets and voters will expect support from the government and the Fed.”

Britain’s FTSE 100 closed down 2.3 per cent to 5,292.03, while Germany’s DAX slumped 3.4 per cent and France’s CAC-40 shed 3.6 per cent.

Shares in riskier sectors such as banks and commodities fell furthest as traders reverted to risk-off mode following three straight days of gains. Conversely bonds, gold and the Swiss franc rallied as investors fled to perceived safe-haven investments.

Integrated oils and miners fell in tandem with oil and base metals as concerns over future demand hit sentiment.

Volumes were thin, with the FTSE trading just 86 per cent of its 90-day average, a sign investors were unwilling to be exposed to such volatile markets.

With US markets closed on Monday for the Labour Day holiday, investors were likely to have closed out positions ahead of the long weekend.

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