Today’s ugly jobs report adds to the fears that the U.S. economy is heading towards another recession. These fears had eased a bit in recent days as a host of economic readings showed signs of positive economic momentum. The continued resilience in the weekly jobless claims data and Thursday’s ISM report appeared to be leading towards the conclusion that while growth was very weak, it was nevertheless positive. This morning’s jobs report brings the recession scenario again to the front.
The Bureau of Labor Statistics reported the creation of no new jobs in August, significantly below the consensus expectation of about 65 thousand. Private sector jobs totaled 17 thousand, down from 156 thousand in July. The prior month’s numbers were revised down, with July’s gains coming down to 85 thousand from the originally reported 117 thousand level.
Average hourly earnings dropped 0.1% in August, compared to a 0.5% gain in July. The average workweek ticked down a bit. The unemployment rate remained unchanged at 9.1%.
This is the weakest payroll reading since September 2010. The key unusual item in today’s report was the negative contribution from the Verizon Communications (VZ) strike. The number would look modestly less ugly had it not been for that fact. But any way you slice it, there is no silver lining in this report.
This fresh deterioration in the labor market increases the odds that the Fed will come out with further quantitative easing. At a minimum, it strengthens the odds of some action from the Central Bank in the coming months, provided we start seeing some let up in inflation readings.
The outlook for the nation’s economic health had turned negative following the release of the second quarter GDP report in late July. The accompanying negative revisions to the prior quarters showed that the U.S. economy was entering the back half of the year with a lot less momentum than was initially expected. The resulting downward revisions to second-half GDP growth estimates added to the fears that the economy could fall into a double-dip recession. Today’s sub-par jobs report magnifies those fears.
This a major disappointment for the market, particularly given the relatively less negative economic readings of recent days.