Weak Jobs Report for June Reveals Struggling U.S. Economy

The U.S. economy added only 80,000 jobs in June according to the U.S. Department of Labor. Estimates were for 100,000 jobs added in June.

It was the third month in a row of sluggish hiring. The unemployment rate stood unchanged at 8.2 percent.

 The economy added an average of just 75,000 jobs a month in the April-June quarter.

Job growth averaged an impressive 252,000 a month from December through February as many U.S. businesses hired seasonal workers due to much warmer than average winter weather, spurring greater demand in big sectors like construction which typically adds construction workers in late spring months.

During the first three months of 2012, the U.S. economy grew at a slow annual rate of 1.9% and estimates for the April-June period are increasingly coming in around 1.5%.

On Thursday the U.S. ISM numbers for June were disappointing and showed a month over month decline. The non-manufacturing index fell to 52.1 in June, according to the Institute of Supply Management’s monthly report, sharply lower than 53.7 in May and below market expectations.

A reading above 50 indicates expansion.

With the so-called U.S. fiscal cliff – a combination of expiring tax cuts and automatic government spending cuts- will occur in early 2013 if Congress does not act, an increasing economic ripple effect could be felt in the second half of 2012 especially if businesses are reluctant to create new jobs until the fiscal cliff is more in focus.

This morning’s disappointing jobs report will allow Republican presidential candidate Mitt Romney to focus more on the weak U.S. jobs picture and less on fighting the merits of Obamacare.

Euro Area

On Thursday ECB President Mario Draghi cut interest rates to a record low to help prevent Europe from falling further into recession and encourage lending across the euro bloc area. The ECB lowered its benchmark lending rate by a quarter of a percentage point to a record low 0.75%, in line with market expectations. The central bank also lowered the deposit rate on money held at the ECB overnight to 0% from 0.25%.

Bob Parker, a senior advisor at Credit Suisse Asset Management, said this morning on Bloomberg’s On the Move that the actions taken by the ECB disappointed investors, leading to a a sharp stock selloff in Europe.

Parker mentioned that the Spanish yields on the 10 year bonds are rising again close to 7%, a level that is considered to be unsustainable over a significant period of time.

Parker believes that a Spanish bailout will be needed if the 10 year yield  is between 7-8% in October. He questioned what comes next following last week’s pivotal EU Summit. 

“Will we get another round of LTRO or other measures such as interventions in a credit -default swap?” Parker asked.

 “What happens when the ESM is up and running and to what extent will they be a buyer in the bond markets?”

Some economists believe that the ECB is running out of artillery to provide further easing measures in the future.

ECB President Draghi was questioned about whether the ECB was running low on policy options or artillery to help aid debt in the euro area.

Draghi said “there was no such feeling … we still have all our artillery ready.”

Draghi explained the council had not discussed any other “non-standard” measures such as buying sovereign bonds or making more long-term cheap funding available to banks.

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