T
he U.S. economy added 96,000 jobs in August, according to U.S. Department of Labor stats on Sept. 7, falling far short of economists’ expectations and stifling recent market gains.
This news took the wind out of the sails from last Thursday’s encouraging stock market rally. On Friday, the Dow Jones Industrial Average gained 14.64 points, or 0.1 percent, while the S&P 500 Index moved 5.8 points, or 0.4 percent. The Nasdaq Composite Index increased by 0.6 points, or 0.02 percent.
Markets React
U.S. stocks were largely in the black last Friday, not due to investors cheering any economic development, but from traders’ speculation that the disappointing jobs report would spur a third round of quantitative easing (QE3) from the Federal Reserve.
“Major indices shrugged off the bad news probably because it put the Fed in play with respect to QE3,” analysts at Credit Suisse wrote in a research note to clients.
The U.S. dollar weakened last Friday versus a basket of 16 currencies on speculation that the Federal Reserve would flood the market with dollars in another round of quantitative easing.
Employment Figures Deflating
The nation’s unemployment rate fell from 8.3 percent to 8.1 percent, but only because 368,000 people gave up looking for work and exited the workforce. In addition, the Labor Department revised down the number of new jobs from its June and July reports.
According to Credit Suisse data, surveyed economists gave a median estimate of 130,000 new jobs for August.
Digging further into the figures, jobs from the manufacturing sector—a critical industry for the middle class and a growth engine for much of the year—fell by 15,000. Another sector that saw job losses was in government. Continuing the recent trends of low-paying job growth, the retail sector added 6,000 jobs while restaurants added 28,000 in total.
The current economic environment is a tough one for businesses, as many enterprises are reluctant to expand payrolls in the face of a stagnant economy, with a looming presidential election and continued turmoil in Europe, which has negatively influenced the financial markets.
Recent employment data should continue to be a key factor in the upcoming presidential election, as both Democrats and Republicans will seek to use the weak economy as a basis for their economic expansion plans.
The U.S. unemployment rate has been above 8 percent since February 2009, a month after President Obama took office. It has been the longest period of an elevated unemployment rate since the Great Depression.
Real unemployment is even bleaker than the official 8.1 percent, because it does not count the millions of people who gave up looking for work, those who opted to stay in school, baby boomers who have retired due to a lack of jobs, and others who are underemployed.
The Federal Reserve Bank of Atlanta set up a website to calculate how quickly the job market would need to accelerate to get unemployment back to normal levels. At the current level, it would take three years of 139,000 monthly job gains to get the jobless rate back down to 6 percent—a stretch by any imagination.
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