“A modest and long overdue, but welcome, rebalancing of the US economy is underway,” says Larry Elliott in The Guardian. Better-than-expected US employment figures sparked a rally in global equity markets on Friday. The US Labor Department said that 163,000 people had found jobs in America in July. That’s more than the 100,000 increase Wall Street analysts had forecast and broke a three-month run of sub-six-digit numbers.
Most of the jobs were created in the services sector, but there was also an increase of 25,000 in manufacturing jobs. Finance and construction are still weak. The S&P 500 finished last week up 2.1%.
But while equity markets reacted positively, the US economy is far from being out of the woods. “The pace of job creation still remains short of the roughly 200,000 monthly rate needed to bring the unemployment level down,” says Richard Blackden in The Telegraph. The unemployment rate rose to 8.3% in July from 8.2%, while the underemployment rate – a figure showing how many people are forced to accept part-time work – increased to 15% in July from 14.9%.
So while the stronger payroll number “assuages fears” that the US could “spiral into recession”, notes Robin Hardy in the Financial Times, it also “points to a stuttering economy that cannot create enough jobs to bring unemployment down”. Also, with the US presidential election in just three months, as Elliott points out, the bad news for Obama is that the jobless rate is 0.4 points higher than when he took office.
These figures muddy the waters for the Federal Reserve and whether it should launch more quantitative easing (QE3). Quite apart from the potential political uproar that stimulating the economy just before an election would cause, the Fed has “spent much of [its] ammunition already”, notes Michael LaVina at Faros Trading. As a result, the US central bank will most likely want to see more jobs data before making a move.
It’s nice to see the US “moving in the right direction in terms of jobs”, Ron Florance of Wells Fargo told The Telegraph, but “it’s too bad it’s not at a better velocity”. The number isn’t “bad enough” for the Fed to “jump in”, but it’s also “not good enough to fix the long-term unemployment problem”. In short, “we will be muddling along here for a while”.