President Barack Obama was last night facing angry calls from leading Republicans for a U-turn on his administration's policy on deficit cuts after hugely disappointing statistics on jobs raised fears the world's largest economy might be heading for a double-dip recession.
The US economy managed a net gain of just 54,000 jobs last month, official statistics revealed, less than a half of the total analysts had been hoping for.
The private sector added 83,000 jobs in May, the non-farm payroll data showed, well below predictions of 170,000. That compared with a 29,000 fall in the number of public sector jobs. Taking into account an increase in the size of the US labour market last month, the unemployment rate rose to 9.1 per cent, rather than falling below 9 per cent as had been expected.
Mr Obama's political opponents claimed the figures vindicated their arguments for a rethink of policy. "Our economy is not creating enough jobs, and Democrats binge of taxing, spending, borrowing and over-regulating is a big part of the reason why," said John Boehner, the House Republican Leader.
Mitt Romney, the newly declared Republican presidential candidate, said: "[Mr Obama] has been awfully European. You know what? European policies don't work there. They sure as heck aren't going to work here."
However, Mr Obama's aides rejected the criticism. Austin Goolsbee, the chairman of the White House Council of Economic Advisers, said: "The overall trend is substantially more positive than it was two years ago when we were losing more than 750,000 jobs every month."
Nevertheless, the figures will add to the growing row over whether US economic policy is on the right course, following a series of data releases suggesting its previously robust recovery is beginning to falter badly.
Alan Ruskin, a strategist at Deutsche Bank, said: "The employment data has confirmed the market's worst fears about a marked slowdown in US economic activity." The S&P 500 Index of leading stocks fell 1 per cent in early trading following the publication of the jobs figures.
Paul Ashworth, the chief US economist at Capital Economics, said: "The economy clearly just hit a brick wall – it's almost as if it came to a complete standstill." The British think tank said it now expected to see calls for anextension of the Federal Reserve'ssecond programme of quantitative easing, dubbed QE2, which is due to come to an end this month.
However, while the Fed has theoption of making a third attempt to boost the economy with a monetary policy stimulus, the fiscal policyoptions open to the Obama administration are much more limited.
The White House is currently locked in negotiations with Republicans for a rise in the US debt ceiling, which is likely to be breached over the summer.
Moody's, the credit ratings agency, said yesterday it was moving closer to downgrading its AAA rating of the US because it was so concerned about political paralysis.
The agency said a failure to reach agreement on raising the debt ceiling would have disastrous consequences, and that it could be forced to review the US rating in the coming weeks "due to the very small but rising risk of a short-lived default".
In addition to the jobs setback, the US has this week had to cope with figures suggesting consumer spending is now falling and that the housing market is in trouble again, with house prices now at their lowest level since 2002.Reuse content