US job creation slows to renew fears on economy

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The Independent Online

The US economy created far fewer jobs than expected last month. The disappointing return was one of a host of factors that sent Wall Street tumbling, amid fears of a weakening economy, rising oil prices and renewed inflation.

The US economy created far fewer jobs than expected last month. The disappointing return was one of a host of factors that sent Wall Street tumbling, amid fears of a weakening economy, rising oil prices and renewed inflation.

According to the Labor Department yesterday, the total of new jobs in the manufacturing and services sectors climbed by only 110,000 in April, only half the figure predicted by economists, while the increases for February and January were scaled down. The headline unemployment rate, calculated on a different basis, dropped however, from 5.4 per cent to 5.2 per cent.

The performance was the weakest in nine months, and fell far short of the estimated 200,000 new jobs required each month to keep pace with a growing workforce. They are bound to rekindle fears about the underlying strength of the economy, which grew by 3.8 per cent in the fourth quarter 2004, and had been expected to keep up a similar pace in 2005.

Consumer confidence also declined last month, reflecting worries about jobs, according to the closely watched index of the New York Conference Board. The March figure of 102.4 was the lowest since November. At the same time oil futures leapt to a new peak of $57.65, increasing concerns about inflation and possible further increases in interest rates.

Initially the stock market greeted the news with equanimity, opening some 60 points higher in the belief that the poor jobs performance would ease pressure on the Federal Reserve to boost rates. But then Dow turned sharply lower, closing down 99.5 points at 10,404.3.

The dollar, however, followed an opposite course, weakening at first, before recovering as Michael Moskow, the president of the Chicago Federal Reserve Bank, issued a new warning about inflation - taken by traders as a hint the Fed may start raising rates more aggressively later this year. The central bank raised its key short-term rate last month to 2.75 per cent in the seventh successive 25 point increase, after holding it steady at 1 per cent, a 45-year low, between 2003 and 2004.

The other big worry is the vast economic imbalance between the US and the rest of the world. With American consumers showing an ever more voracious appetite for foreign goods, the 2004 US current account deficit reached $617bn, almost 6 per cent of GDP, while the federal budget deficit now tops $400bn. Both are largely financed by purchases of US government securities by central banks of surplus countries, notably Japan, China and South Korea.

The poor jobless figures, economists say, may reflect a new wariness by US companies, as the oil price have surged. But they also reflect the growing portion of US demand being met overseas. This might also weigh on GDP growth later in 2005.

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