WASHINGTON — A better-than-expected employment report Friday from the government eased concerns about an imminent recession, but financial turmoil in Europe continued to roil global markets and remains a threat to the sluggish U.S. economic recovery.
U.S. stock markets proved stunningly volatile again Friday, a day after stock prices plunged roughly 5 percent. The Labor Department report that non-farm payrolls rose by 117,000 jobs in July and the jobless rate ticked down slightly to 9.1 percent sent the Dow Jones industrial average climbing 170 points in the first minutes of trading.
That rise was short-lived as the index went lower, largely on fears of the impact of Europe's financial crisis. But prices then turned higher as a possible solution to the crisis was announced. In the end, the Dow closed up 60.93 points to 11,444.61, an anticlimax to a day that had seen the index fluctuate more than 400 points.
The S&P 500 was down by 0.69 point to 1199.38, and the tech-heavy Nasdaq finished off 23.98 points to 2532.41.
The market volatility after the jobs report indicated that Europe's debt problems may be weighing more on investors than concerns about the U.S. economy and whether it might be falling back into recession. While the Bureau of Labor Statistics' jobs numbers were hardly stellar, they felt great to many after two consecutive dismal jobs reports and a spate of recent weak economic indicators.
Mark Zandi, the chief economist for forecaster Moody’s Analytics, said the jobs report "suggests that the economy will skirt recession," though it remained to be seen whether it would offer relief to wary investors. "The better job number was critical to quell the turmoil in financial markets and shore up flagging confidence,” he said.
The brightest spot in the government report was private-sector hiring. It came in at 154,000 jobs in July. But 37,000 lost government jobs, almost all of them at the state and local level, dragged down the overall hiring number.
Health care, retail sales and manufacturing showed healthy hiring during July, respectively adding 31,300, 25,900 and 24,000 jobs. The growth in manufacturing employment was a relief, because a key gauge of manufacturing activity released Monday had shown near-recession levels.
“In short, these numbers are an improvement. After a couple weaker months of job growth, manufacturing employment is once again moving in the right direction, led by the durable goods sector,” Chad Moutray, the chief economist for the National Association of Manufacturers, wrote in his Shopfloor blog. “It is important to note the bounce-back in employment within the automotive sector, which has been challenged since the Japanese earthquake and tsunami with supply chain issues. Hopefully, this bodes well for future growth in that sector.”
The retail sales hiring number was consistent with the better-than-expected July sales numbers that major retailers reported.
The BLS also revised upward its previous estimates for employment in June and May. June had come in at a horrible 18,000 new jobs. That was revised Friday to 46,000. Similarly, May’s numbers had been revised down last month to a weak 25,000 new jobs but on Friday, based on new incoming data, that number was placed at 53,000.
More important were revisions to private-sector hiring, which now is thought to have added 99,000 jobs in May and 80,000 in June. Government layoffs dragged down the jobs reports again for both those months. Still, Nigel Gault, the chief U.S. economist for forecaster IHS Global Insight, was unimpressed.
“The July jobs report was not as bad as May and June. That's about the best that we can say for it," he said. In a research note, he said the one-tenth of 1 percent dip in the jobless rate was due most likely to a drop in the size of the labor force. The job increase, he said, is "still not enough to create a downward trend in the unemployment rate.”
Friday’s jobs report showed the U.S. economy moving forward despite what have been some significant head winds to growth
“The economy is struggling but it is weathering the storm created by higher oil prices, fallout from the Japanese quake and the hit to confidence from the debt ceiling spectacle,” Zandi said.
It now faces head winds from Europe’s debt crisis, which began with financial problems in Greece and has spread to worries about big economies such as Italy and Spain. The seemingly inconsistent policy messages from European leaders have weighed heavily on global financial markets.
That may have changed Friday, when the European Central Bank signaled that it would step in to aid Italy and Spain, which face mounting debt problems. If these countries speed up structural changes to their financial systems, the central bank said, it will buy their bonds to shore up the broader euro zone economy.
Still, analysts said the U.S. economy faced a tough road ahead, with the one-year growth rate of about 1.6 percent over the past 12 months a troubling sign of a looming recession.
“The record is not very comforting," Mark Vitner, a senior economist for the Wells Fargo Economics Group, wrote to investors, noting that recessions have followed slow growth in 11 instances since 1950.
“The reason sluggish economic growth has been followed by a recession so many times is that recessions are typically caused by exogenous shocks or policy mistakes,” he said.
At a minimum, he said, “the conditions are ripe for a recession.”
Speaking at Washington’s Navy Yard on Friday, President Barack Obama welcomed the jobs report but called on Congress to do more to spark growth. He pointed to another year’s waiving of payroll taxes, fostering construction jobs through needed infrastructure spending and a new proposal to give tax credits to businesses that hire veterans.
“Those are all steps that we can take right now to make a difference,” the president said.
There was still plenty of hurt in Friday’s jobs report. The BLS reported that the number of people who'd been unemployed for less than five weeks fell by 387,000, but that just offset the similar increase during the previous month. More importantly, the number of long-term unemployed _ Americans who've been jobless for 27 weeks or more _ was 6.2 million in July, virtually unchanged from the previous month. The long-term unemployed still account for 44.4 percent of all of the jobless.
Under the debt-ceiling deal that Congress reached this week, there was nothing to indicate that benefits for the long-term unemployed would be extended. That could push millions of the long-term jobless into public assistance programs in their states, during a time when state governments are slashing their budgets and laying off workers.
Speaking on CNBC television Friday morning, House Majority Leader Eric Cantor, R-Va., said his party had no interest in extending benefits any further and would focus on creating jobs, a goal of both parties that's proved elusive in the aftermath of the Great Recession.
JULY BY THE NUMBERS:
- Government jobs, down 37,000.
- Financial services, down 4,000.
- Temporary help services, up 300.
- Transportation and warehousing, up 1,100.
- Construction, up 8,000.
- Leisure and hospitality, up 17,000.
- Manufacturing, up 24,000.
- Retail, up 25,900.
- Health care, up 31,300.
- Professional and business services, up 34,000.
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