US jobs stagnation puts more pressure on the Fed to act

US non farm payrolls badly missed market expectations of a 75,000 job increase in August to show complete stagnation, with no new jobs created, heaping yet more pressure on the Fed to re-ignite the US economic recovery.

It was a bad number for US jobs in August, which showed zero change for non farm payrolls whilst private payrolls also disappointed, creating just 17,000 jobs when a figure closer to 100,000 was expected. The US unemployment rate held steady at 9.1%. Equally troubling could be the fact that average working hours fell from 34.3hrs to 34.2hrs, which could indicate that companies are trying to scale back employment costs.

Considering the shockingly bad US consumer confidence number we saw for August, which was at a two year low, one should not necessarily be too surprised that businesses failed to hire more staff last month. There are also several exceptional circumstances that may have influenced these numbers too, such as the Verizon strike. Realistically speaking, we will need to see more evidence of a stagnation and potential contraction in the US jobs market for the case for a ‘double dip recession’ to strengthen over what is currently viewed as medium term anaemic growth.

The reaction in the markets was a continuation of stock selling of the morning trade to force the FTSE 100 lower by 2.3%, losing some 60 points or 1% in the initial minutes after the US jobs data was released, with the miners, oil and banking firms suffering the most from the selling. However, losses could be tempered by a realisation that this poor set of jobs numbers will heap yet more pressure on the Federal Reserve to stimulate growth. One supposes that a positive aspect from these numbers is that it could help to free the hands of the Fed to act by tempering the political antipathy shown from US politicians when considering QE3 in the first place.

Considering the clues given to the market by Ben Bernanke, the Fed Chairman, at Jackson Hole and the fact that Septembers FOMC meeting has been extended to two days instead of one, naturally this will be the time where investors may now concentrate their hopes for QE3 to be announced

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