US jobs report eases global gloom

The better-than-expected US jobs report suggests the US is not following Europe into recession. But some analysts worry that head winds will keep growth anemic.

The United States created 163,000 additional jobs in July, a number that will help dissipate some of the economic gloom that has settled on the world lately.

The better-than-expected number suggests that the US is not headed into recession, may not need an immediate boost of stimulus from the Federal Reserve, and will continue to buy products from Bangalore, Shanghai, Mexico City, and so on. While July’s job growth was not enough to bring the unemployment rate down – the rate actually ticked up from 8.2 percent in June to 8.3 percent – in the context of a global slowdown in economic activity, it was cheering.

Germany’s DAX stock index rose nearly 4 percent for the day; France’s CAC closed up 4.4 percent. In the US, the S&P 500 index was trading up 1.8 percent headed toward Friday's close.

“This was a good report,” says Scot Melland, president and chief executive officer of Dice Holdings, which runs specialized career websites in the technology, financial services, and health-care industries. “If you look at it on a global basis, the US continues to do well, certainly relative to Europe…. But we haven't quite made the medal stand yet.”

What has analysts worried is that the same winds that have slowed economies from Beijing to Brasília will cause the US economy to slow as well.

“Given global events, recent evidence that new orders in the manufacturing and non-manufacturing sectors are softening considerably, and enormous uncertainties related to US fiscal policy, we believe that job growth is going to be anemic in the coming months and that it would be a mistake to conclude that today’s better result represents a harbinger of things to come,” writes Joshua Shapiro, an economist for New York-based MFR, in an analysis.

One of the big question marks is the ongoing sovereign debt crisis in Europe.

In June, the eurozone reported record unemployment – 11.2 percent. Since April 2011, the 17-nation region using the euro has lost nearly 2.3 million jobs. (By contrast, the US added 1.9 million jobs in the same period.) In some European countries, the situation is far worse: a quarter of Spanish workers are unemployed and so are a sixth of Portuguese workers.

Those sobering trends, combined with a slew of weaker-than-expected US data in recent weeks, have caused some analysts to reduce their growth forecasts for the US economy. They now see a continuation of the first half’s anemic growth, while many analysts expect the US economy to pick up somewhat in the second half of the year.

Either way, few expect a further slowdown, which means that America’s plodding recovery will continue to poke along.

A similar picture of stable growth emerges from the unemployment numbers. Last year, the economy added an average 153,000 jobs a month. So far, 2012 is nearly matching that pace with 151,000 jobs a month.

That is good news for emerging markets in Asia and South America. The so-called BRIC nations (Brazil, Russia, India, and China) are growing much faster than the US, but they are clearly slowing. Given the contraction in Europe, they need to see growth somewhere for their exports.

“The bigger than expected 163,000 increase in non-farm payrolls in July … will ease fears that the US economy is following Europe into recession,” writes economist Paul Ashworth of Toronto-based Capital Economics in an analysis.