A bit less dread after modest job growth

August 5, 2011

At the end of an ominous week for the global economy, Friday brought new signs that the world may not be ending after all — though even the good news came with asterisks.

The United States managed modest job creation last month, the government reported. The unemployment rate even ticked down a notch, offering hope that the economy may not be slipping back toward recession. That said, the report was a bright spot mainly because of diminished expectations after months of disappointments.

And as Europe’s debt crisis threatens to spiral out of control, the Italian government said it will enact new measures to try to reduce budget deficits and make its labor market more efficient, steps meant to instill confidence among the global investors who have fled its debt. But there were still no guarantees that the actions will be enough to restore confidence in one of Europe’s biggest economies.

Wall Street had a seesaw day, as investors reacted to those and other pieces of news with wild swings — the Dow Jones industrial average soared up 171 points, then later was down 243 — reflecting the deep uncertainty that has gripped markets over the past two weeks. U.S. markets closed mixed: Standard & Poor’s 500-stock index closed down 0.1 percent; the Dow Jones industrial average up 0.5 percent.

In another worrisome sign, Standard & Poor’s, the credit rating firm, was considering a downgrade to the U.S. government’s AAA credit rating Friday night, according to news reports. Such a move could increase the cost for the U.S. government to borrow money and trigger ripple effects around the globe.

After the sell-off of nearly 5 percent in the S&P index on Thursday, two big fears have the world financial markets on edge: That the United States could fall back into recession, and that the European debt crisis could spread to the huge economies of Spain and Italy.

The first fear was eased Friday morning when the Labor Department said that U.S. employers added 117,000 jobs in July, more than double the revised 46,000 added jobs in June and better than the 85,000 net new jobs for July that were forecast. The unemployment rate ticked down to 9.1 percent, from 9.2 percent in June. The private sector did even better, adding 154,000 positions. But governments — particularly at the state and local level — slashed so many positions that this held back overall job growth. Minnesota’s government shutdown alone accounted for 23,000 lost jobs.

“Today’s employment report was a relief, given increasing market fears over the likelihood of a second recession,” said Neil Dutta, an economist at Bank of America-Merrill Lynch. “Contrary to recent opinion, the economy is not collapsing.”

“The July jobs report was not as bad as May and June,” said Nigel Gault, chief U.S. economist at IHS Global Insight. “That’s about the best that we can say for it.”

Speaking at the Washington Navy Yard, President Obama acknowledged that “this has been a tumultuous year,” addressing this week’s plummeting markets. He noted that private job creation in July was the strongest since April, but added that the nation still needs to put millions of people back to work.

“We need to create a self-sustaining cycle where people are spending, companies are hiring, and our economy is growing,” said Obama, calling on Congress to extend a temporary payroll tax cut and unemployment insurance benefits.

House Speaker John A. Boehner (R-Ohio) blamed the weak jobs picture on the president’s policies.

“While the American people are asking ‘where are the jobs?’ the Democrats running Washington are determined to punish small businesses with higher taxes and more red tape,” Boehner said in a statement. “Instead of more jobs, they’re creating more fear, more uncertainty and more debt.”

There was little to love in the report. The unemployment rate declined for bad reasons, not good ones: 193,000 people dropped out of the labor force, no longer counted as unemployed because they apparently gave up looking for work.

And only 58.1 percent of the U.S. population had a job, down one-tenth of a point from June to reach the lowest level since the early 1980s.

Businesses “appear to believe they can maintain profits while adding cautiously to payrolls,” Conference Board economist Kathy Bostjancic said. “If that is true, the labor market will slowly come back, but it’s a long way back.”

Still, the modest job growth helps allay fears that U.S. economic activity is shrinking, rather than growing slowly. In recent days, exceptionally weak reports on U.S. economic output in the first half of the year, the manufacturing sector and consumer spending have deepened fears of recession.

“It’s certainly a breath of fresh air to come in well above expectations,” said Austan Goolsbee, the president’s chief economist, in an interview. “But that’s a long way from where we need to be with the unemployment rate as high as it is. . . . I still think this should be viewed as a call to action that we should not be taking anything for granted.”

In a welcome sign, average hourly wages increased by a healthy 0.4 percent in July, after being unchanged in June. The length of the average workweek was unchanged at 34.3 hours.

Job creation was strongest in the health-care field, which added 37,000 positions. There were also solid results in the professional and business services sector, which added 34,000.

The manufacturing sector was another bright spot, adding 24,000 positions, in part because of auto plants ramping up output as the impact of the Japanese earthquake dissipated.

The steepest losses were in government jobs, which shed 37,000 positions as state and local governments slashed their budgets to grapple with lower revenues. That level of job loss may come down, however, as it was exaggerated by Minnesota state government employee temporarily out of work due to a shutdown there.

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