Saturday 2 June 2012

Struggling U.S. Economy Drags Down The World


Dow plunges more than 200 after dismal jobs report
The American economy is in trouble again.



26 April, 2012

Employers in the United States added only 69,000 jobs in May, the fewest in a year and not even close to what economists expected. For the first time since June, the unemployment rate rose, to 8.2 percent from 8.1 percent.

It was the third month in a row of weak job growth and further evidence that, just as in 2010 and 2011, a winter of hope for the economy has turned to a spring of disappointment.

"This is horrible," said Ian Shepherdson, chief economist at High Frequency Economics, a consulting firm.

The job figures, released Friday by the Labour Department, dealt a strong blow to President Barack Obama at the start of a general election campaign that will turn on the economy.

They also deepened the pessimism of investors, who even before the report was released were worried about a debt crisis in Europe with no sign of solution and signs of a slowdown in the powerhouse economy of China.


The Dow Jones industrial average fell 275 points, its worst day of the year, and for the first time was down for 2012. The Standard & Poor's 500 index is almost 10 percent below its 2012 high, the traditional definition of a market correction.

Mitt Romney, who on Tuesday cleared the number of convention delegates required to win the Republican presidential nomination, told CNBC that the report was "devastating."

He called for an emphasis on energy development, pledged to "kill" the health care overhaul that Obama saw through in 2010 and said he would reduce taxes and government spending. The clearest fix for the economy, he said, was to defeat Obama.

"It is now clear to everyone that President Obama's policies have failed to achieve their goals and that the Obama economy is crushing America's middle class," said Romney, the former Massachusetts governor.

Obama, in Minnesota, pushed a proposal to expand job opportunities for veterans returning from Iraq and Afghanistan. He said that the economy is not creating jobs "as fast as we want" but vowed that it would improve.

"We will come back stronger," he said. "We do have better days ahead."

Alan Krueger, head of the president's Council of Economic Advisers, pointed out that the country has added jobs for 27 months in a row, including 4.3 million jobs in the private sector.

Underscoring the challenge for Obama with five months to go in the campaign, a May poll by The Associated Press and GfK, a research company, showed that 52 percent disapproved of Obama's handling of the economy while 46 percent approved.

Some financial analysts said that the dismal job figures put pressure on the Federal Reserve to take additional steps to help the economy, but it was not clear how much good the Fed could do beyond trying to inspire confidence.

The central bank has already kept the short-term interest rate it controls at a record low of almost zero since the fall of 2008, during the financial crisis, and pledged to keep it there through late 2014.

It has undertaken two rounds of massive purchases of government bonds, starting in March 2009 and November 2010, to help drive long-term interest rates down and stimulate stock prices. Another program to lower long-term interest rates, known as Operation Twist, was announced last September and ends in June.

But low interest rates, other analysts pointed out, are not the problem. An investor stampede into bonds on Friday drove the yield on the 10-year U.S. Treasury note as low as 1.44 percent, the lowest on record.

Fed Chairman Ben Bernanke testifies next week before a joint committee of Congress, and the Fed next meets June 19 and 20.

Complicating the challenge for the economy, tax cuts passed under President George W. Bush will expire after Dec. 31, as will a cut in the Social Security payroll tax. More than $100 billion in automatic spending cuts to defence and domestic programs also kick in Jan. 1. Less money in consumers' pockets next year and less spending by the government would be a significant drag on the economy.

Congress could extend the tax cuts, but Republicans control the House of Representatives, and they have little political incentive to help Obama in the November election by doing so.

The Congressional Budget Office has said the tax increases and spending cuts would cause the economy to shrink at an annual rate of 1.3 percent in the first half of next year.

The economy grew at a 1.9 percent annual rate in the first quarter of this year.

And there is little significant action that the White House can take on its own.
The job figures in the United States added to evidence that the world economy is in peril again.

Spain insisted Friday that it is financially stable, but its borrowing costs are creeping close to the 7 percent level that forced Greece, Ireland and Portugal to seek international bailouts.

Europe has grappled for more than two years with the crippling debt owed by many of its countries, and leaders remain divided over how to solve it. Stronger countries like Germany have insisted on government spending cuts, but voters in weaker countries are in no mood for further fiscal pain. Unemployment in the 17 countries that use the euro countries is a record 11 percent.

And even fast-growing economies in the developing world appear to be slowing.
India reported Thursday that its economy grew just 5.3 percent in the January-March quarter, slowest in nine years. And manufacturing in China, the world's second-largest economy after the United States and one of the fastest-growing, barely grew in May.

The US government uses a survey of mostly large businesses and government agencies to determine how many jobs are added or lost each month. That is the survey that produced the 69,000 number.

It uses a separate survey of American households to calculate the unemployment rate. That survey picks up hiring by companies of all sizes, including small businesses, companies being started, farm workers and the self-employed.

The household survey found that 422,000 more Americans had jobs in May than in April. But the work force grew by 642,000 as more Americans who hadn't been looking for work started to look. That is why the unemployment rate inched up from 8.1 percent to 8.2 percent.

The economy lost 28,000 construction jobs, the worst for that industry in two years, and 13,000 government jobs. A category of employers called "leisure and hospitality" cut almost 9,000, mostly at amusement parks, museums and casinos.

And March and April, already disappointing months for job creation, were not as strong as first thought. The government revised the job-growth totals lower by 11,000 to 143,000 for March and by 38,000 to 77,000 for April.

From December through February, the economy added an average 252,000 jobs per month.

"There is virtually nothing positive in this report if you are trying to build a case for an economy that is supposed to be in recovery mode and gaining momentum," said Tom Porcelli, chief US economist for RBC Capital Markets.

Investors made their disappointment clear.

The Dow, the S&P 500 and the Nasdaq composite index all fell by more than 2 percent. The S&P, which was up 12 percent for the year through March, was left with a slender gain of 1.6 percent.

Homebuilder stocks fell the most, apparently because the dismal picture for the US economy outweighed a report that construction spending rose for a second month in April.

The price of gold, which some investors have often bought over the past three years for safety in turbulent economic times, climbed $58 an ounce, to $1,622, the highest since early May.

Anticipating weaker world demand, investors drove down the price of oil by $3.49 a barrel to $83.04, the lowest since October and 24 percent below its peak of $109.77 in February.

That will at least provide help for American drivers: The price of gasoline, which peaked at an average of $3.94 a gallon in April, has fallen to $3.61. It is below $3 in parts of South Carolina, and the national average should be below $3.50 soon.

Business owners cited a range of reasons for pulling back on hiring in May. Some said sales had been hurt by the weak economy in Europe. Others, like a California road construction company, said slower government spending was costing them.

But in interviews on Friday, most expressed general uncertainty about the US economy.
Alan Gaynor's architectural design firm in New York, Alan Gaynor & Co., isn't hiring because his clients, real estate developers, are uneasy about starting projects.

"It's a wait-and-see attitude they have. Everyone's a little nervous. The economy's growing a lot slower than anyone would have liked," said Gaynor, who has 15 employees, the same as a year ago.

Still other businesses cited tight credit, a vestige of the 2008 financial crisis.
Robert Stewart Inc., a 93-year-old New Jersey company that makes neckties, wants to add five or six workers to its staff of 18, and business is up, said Steven Wishnew, the company's operations director.

But the company can't get the $50,000 to $100,000 in credit that would "kick-start our engine," he said, and sellers that used to give them 90 days to pay now demand payment in advance.

The bank wants the company's owners to put up their homes as collateral for a loan or line of credit, he said.

"You have to be insane to do that," Wishnew said. "Who knows where this economy is going?"


See also

Struggling U.S. Economy Drags Down The World


US jobs report: a disaster


Jobseekers stand in line to attend the Dr. Martin Luther King Jr. career fair held by the New York State department of Labor in New York ( REUTERS/Lucas Jackson)


RT, 1 June, 2012
Month after month, dismal jobs numbers are released from Washington and quickly spun to either enhance the image of the Obama administration or attempt to smash it. This month, though, there’s only one way to look at the figures — and it’s bad.
The US Department of Labor released employment statistics for the month of May on Friday, and almost every figure factored into their report suggests that the recent stabilization of the jobs market was only a momentary one. After the unemployment rate under the presidency of Barack Obama skyrocketed last June to its highest during his first term — 11.3 percent — numbers released since have led many to assume that the recession of yesteryear was finally behind the country for good.The report published by the Labor Department Friday, however, includes some not so optimistic information.
The unemployment rate for the month of May 2011 is clocked in at 8.2 percent, according to the new report, signaling a surge after April’s figure of 8.1 percent marked the best numbers America has seen since Barack Obama entered the White House in January 2009. After having the bulk of his presidency marred by grave jobs figures, April was viewed by many as a turning point that would take the country back out of the hole. Once again, though, the unemployment rate is back on the rise.
The May report also reveals that only 69,000 new jobs were added to the workforce last year, the weakest statistic that category has seen  this year. January and February saw the job creation count at 275,000 and 259,000 respectively, but it’s been a fast paced deceleration since — only 143,000 jobs were created in March and barely half of that in April.
The descending whimper of the figures, released June 1, come exactly three years after the National Bureau of Economic Research said the great recession birthed during the George W. Bush administration formally ended.

Three years after the recession, why hasn't the jobs picture improved?” asks Cleveland Federal Reserve President Sanra Pianalto in a statement released Thursday. "The recovery has been too slow to prompt companies to hire.”

There just simply isn’t enough growth in the economy to support job growth at a higher level,” Keith Hall, former commissioner of the Bureau of Labor Statistics, adds to the Washington Post.
Earlier this year, overly optimistic attempts to disregard gloomy statistics could be blamed on teetering numbers not directly related with the actual unemployment rate. For example, fluctuating figures related to the number of people entering and leaving the workforce and the underemployment rate can have dire effects on the economy while not as well reported in articles that address the actual unemployment rate. In December 2011, the Obama administration patted itself on the back for reporting an 8.6 percent unemployment rate for the country during the month before. And while 120,000 jobs may had been created in November — more than April 2012 — 315,000 Americans just flat out abandoned their job hunt, shrinking the workforce and forcing numbers to look better than they were.

Raymond J. Keating, the chief economist for the Small Business & Entrepreneurship Council,tells the San Antonio Business Journal that the latest numbers are “far below expectations and where job creation should be — at 240,000 to 250,000 — during a recovery,”
The private sector was responsible for all jobs that were introduced last month. The federal government actually counts 13,000 fewer employees for May while the private industries added around 82,000. The average workweek for an American employee also dropped a fraction to 34.4 hours per week and the underemployment rate — those jobless for 27 weeks and more — grew from 14.5 percent to 14.8.
The Labor Department has also adjusted figures from the previous two months, downgrading the number of jobs created for both April and May.
To disconfirm worries of a fast faltering economy, Alan Krueger, chairman of Obama's Council of Economic Advisers, said in a statement on Friday, "It is important not to read too much into any one monthly report." The adviser adds, however, that "There is much more work that remains to be done to repair the damage caused by the financial crisis and deep recession that began at the end of 2007."

On cue, Republicans quickly pounced on the topic. "Today's extremely troubling jobs report proves yet again that President Obama's policies simply are not working and that he has failed to live up to the promise of his presidency,"Republican National Committee Chairman Reince Priebus tells the Associated Press.
The results of a study released this March from Rasmussen Reports suggests that 82 percent of likely US voters consider the economy to the most important issue leading up to Election Day.

President Obama’s likely opponent come November, Mitt Romney, says of Friday’s report, “The president’s re-election slogan may be ‘forward,’ but it seems like we’ve been moving backward.”


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