US employment growth ground to a halt last month, reviving recession fears and piling pressure on both US President Barack Obama and the US Federal Reserve to provide more stimulus to aid the frail economy.
For the first time in nearly a year, the economy failed to create new jobs on a net basis, according to the Labor Department’s monthly nonfarm payrolls survey on Friday.
Economists had expected nonfarm employment to rise 75,000 last month, but they cautioned against viewing the data as a surefire sign of recession.
A worsening debt crisis in Europe and an acrimonious political fight over the US government budget and debt, which led Standard & Poor’s to strip the country of its “AAA” credit rating, ignited a massive stock market sell-off last month and sent business and consumer confidence tumbling.
“The economy is struggling against stiff headwinds, which appear to have intensified in recent months,” TD Securities senior macro strategist Millan Mulraine said in New York. “While it has clearly not fallen off the cliff, there is little to suggest it is anywhere close to regaining its momentum.”
Investors fled riskier assets on the news, sending stocks tumbling, pushing up the price of gold, and lowering US Treasury bond yields.
Employment was dampened by 45,000 striking workers at Verizon Communications. Those workers have since returned to work and will be counted as on the payroll this month.
However, even taking that into account, the report was largely bleak. The unemployment rate, however, held at 9.1 percent as a survey of households found both job growth and, for the first time in a year, an expanding labor force.
With the jobless rate stuck above 9 percent and confidence collapsing, Obama faces pressure to come up with ways to spur job creation. The health of the labor market could determine whether he wins re-election next year.
Obama will lay out a new jobs plan in a speech to the nation on Thursday, and White House advisers said the data underscored a need for action.
“He will be very specific about what we can do that can have a meaningful impact on job growth in the economy right away,” said Gene Sperling, a top economic adviser to Obama.
Despite massive cash injections by both the government and the Fed, sustainable job growth has eluded the economy.
The data could strengthen the hand of officials at the US Fed who wanted to do more to help the sputtering economy last month. The economy needs to generate about 150,000 jobs each month just to keep the unemployment rate steady over time.
The central bank, which meets on Sept. 20 and Sept. 21, cut overnight interest rates to near zero in December 2008 and has bought US$2.3 trillion in securities to inject cash into the economy.
Despite simmering inflation pressures, many economists expect the Fed to launch a third round of bond buying soon to put downward pressure on long-term rates, partly because the US government appears intent on belt-tightening.
While employment was held back by the Verizon strike, the impact was offset somewhat by the return of 23,000 public employees in Minnesota after a partial government shutdown.
Stripping out both of those factors, employment would have expanded by more than 20,000 jobs last month and, without the strike, private payrolls would have increased by 62,000, instead of a paltry 17,000.