Weak US Job Growth Points to More Action from the Federal Reserve

This morning’s data from the US Bureau of Labor Statistics showed that employment grew by just 80,000 jobs in June, and that the US unemployment rate remained steady at 8.2%. Economists had been expecting the economy to add 100,000 jobs.

In a month-over-month comparison, private employers added 84,000 jobs during June, while all levels of government lost 4,000 jobs. The federal government cut 7,000 workers in June, while local governments lost 14,200 jobs in education. Local governments added 18,100 workers in non-educational jobs.

Year-over-year, all levels of government lost 169,000 jobs on a seasonally adjusted basis. Private employers gained nearly 2 million jobs year-over-year.

Among private employers, job gains during the second quarter averaged 75,000/month, compared with gains of 226,000/month in the first quarter. A likely explanation for the huge difference is that good weather in the first three months of the year pulled hiring forward, at least in April and May. But the bad news is that June should have been stronger even than the expected 100,000 added jobs.

Continuing concern over slow growth in the global economy was the likely culprit for the weak jobs number in June. The worse news is that those concerns are only likely to get worse in the second half of the year as the US approaches both the presidential election and the fiscal cliff looming at the end of the year.

A further implication of today’s report is that pressure will mount on the FOMC to announce a third round of quantitative easing at its meeting at the end of this month. With inflation under control and a new threat of deflation, the FOMC virtually has no choice but to use what weapons it has to keep the economy moving forward. It’s a lead-pipe cinch that Congress will do nothing in the run-up to the elections.

Paul Ausick