Global equities are sold off as US job growth grinds to halt
Pressure mounts on the Fed, Obama to act as new fears of recession take hold
Published 03/09/2011 | 05:00
STOCK markets slumped on both sides of the Atlantic yesterday as US employment growth ground to a halt in August.
Sagging confidence discouraged already skittish businesses from hiring, piling pressure on the Federal Reserve to provide more stimulus to aid the economy.
At the close last night, the Dow and S&P were down 2.2pc and 2.5pc respectively, while the FTSE (-2pc), CAC (-3pc), ISEQ (-3pc) and other European bourses all suffered in the general equity sell-off.
US non-farm payrolls were unchanged last month, the Labour Department said yesterday, and employers created a combined 58,000 fewer jobs than had been thought in June and July.
The bleak report fuelled recession fears. Oil tumbled, while US government debt prices rose as traders bet on a further easing of monetary policy.
"The economy is slowly grinding to a halt," said Steve Blitz, senior economist at ITG in New York.
The US employment figure was the weakest reading on jobs in nearly a year and far below the 75,000 job gain Wall Street had expected.
The unemployment rate, however, held at 9.1pc as a survey of households found both job growth and an expanding labour force.
With the jobless rate stuck above 9pc and confidence collapsing, US President Barack Obama faces pressure to come up with ways to spur job creation.
Election next year
The health of the labour market could determine whether he wins re-election next year.
Mr Obama will lay out a new jobs plan in a speech to the nation next Thursday.
"This better be one hell of a speech next week," said Sal Arnuk, at Themis Trading in Chatham, New Jersey.
The data could strengthen the hand of officials at the Fed, the US central bank, who were ready at their August meeting to do more to help the sputtering economy. The Fed next meets on September 20-21.
The Fed cut overnight interest rates to near zero in December 2008 and it has bought $2.3 trillion (€1.6trn) in securities in two bouts of bond buying, known as quantitative easing, or QE.
Analysts say its arsenal is now largely depleted, although expectations grew yesterday of further action.
"The Fed has gained greater political ability to enact a version of QE3 at their meeting in September," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
Employment was held back in part by a strike by about 45,000 Verizon Communications workers, although that was somewhat offset by thousands of public employees in Minnesota who returned to the job after a partial government shutdown.
Still, the overall tenor of the report was decidedly weak. The length of the average work week dropped to 34.2 hours, the fewest since January, and average hourly earnings fell three cents. The economy needs to generate 150,000 jobs or so each month just to keep the unemployment rate steady over time. (Reuters)