The stolid U.S. expansion has been driving the world economy this year, helping to offset a slowdown in China and emerging economies that once fueled global growth.
A private survey of the American job market released Wednesday morning showed the country added 190,000 jobs in August, up from the previous month. Most of the hiring came from small- and medium-sized businesses, and many of the positions were in professional fields and in trade, transportation and utilities.
Wall Street took heart from those results Wednesday following a bruising sell-off a day ago. The major U.S. indices up about 1 percent in the first half hour of trading.
“Recent global financial market turmoil has not slowed the U.S. job market, at least not yet," said Mark Zandi, chief economist at Moody's Analytics, which compiled the report for payroll processor ADP.
But the hiring was not as robust as analysts had anticipated, raising worries that Friday's more comprehensive tally of job creation by the Labor Department may also be weaker than expected. Meanwhile, new cracks are appearing in the world economy that threaten to undercut U.S. momentum.
“We expect global growth to remain moderate and likely weaker than we anticipated last July,” International Monetary Fund Executive Director Christine Lagarde said in a speech on Tuesday in Indonesia. “This reflects two forces: a weaker than expected recovery in advanced economies and a further slowdown in emerging economies.”
The IMF has already pared its forecast once this year to a 3.3 percent annual global growth rate, a slower pace than 2014. At risk now are its estimates for Asia, which was expected to enjoy the fastest expansion. China is the biggest unknown, though Lagarde remained optimistic despite acknowledging that a slowdown is occurring.
“The transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy,” she said Tuesday. “That said, the authorities have the policy tools and financial buffers to manage this transition.”
Markets seemed determined to test that confidence on Tuesday as U.S. indices plunged following a sell-off that began in Asia. The blue-chip Dow Jones industrial average sunk about 470 points, putting the index back in correction territory. A correction occurs when an index falls 10 percent below a recent high.
The catalyst for the selloff appeared to be a drop in an official measure of manufacturing in China, putting it at a three-year low. Chinese officials have been trying — with mixed success — to shift their massive economy away from export-driven industries and stoke consumer demand at home.
But China was not the only trouble spot in the global economy. Government data released this week showed Canada slipped into a recession during the first half of the year.
The Canadian economy shrank at a 0.5 percent annual rate during the second quarter, according to figures released Tuesday. The decline followed a 0.8 percent annualized dip in the first quarter as business investment dropped off amid plummeting oil prices.
“The sharp decline in global commodity prices has created a stark divide between resource-importing and resource-exporting nations. Those in the latter group enjoyed more than a decade of success before falling back to earth in recent years,” Royal Bank of Canada chief economist Eric Lascelles said. “The ailment has changed, but the global economy continues to limp along.”
The turmoil is complicating the Federal Reserve’s decision over when to begin withdrawing its support for the U.S. economy. The central bank slashed its benchmark interest rate to zero at in the midst of the 2008 financial crisis and has left it there ever since as the recovery found its footing.
But with the unemployment rate at 5.3 percent, Fed officials believe it is reaching its lowest sustainable level. They are considering raising its interest rate for the first time in nearly a decade, with some analysts predicting they could move when they meet in Washington in less than three weeks. Fed Chair Janet Yellen has said she expects to be able to increase the target rate before the end of the year.
The move, whenever it comes, is intended to be a reflection of the Fed’s confidence in the U.S. recovery. Indeed, despite the grim international news this week, data showed construction spending in the America reached a seven-year high in July, driven in part by single-family housing, which has struggled to bounce back after the real estate bust. Auto sales jumped in August, surpassing analyst expectations.
But the possibility of a fumble by the Fed has kept investors and economic policymakers around the world on high alert. In a speech Tuesday, Boston Fed President Eric Rosengren tried to emphasize that even after the central bank raises its rate, subsequent increases will occur only gradually.
“The more gradual tightening cycle should enable monetary policymakers to gauge how tight labor markets can be while maintaining stable prices,” he said.