Hopes that the US economy is turning the corner took a heavy blow yesterday with a jump in the unemployment rate last month to a nine-year peak - bringing the total of jobs lost since President Bush took office to some 2.5 million.
In a report whose gloominess took analysts by surprise, the Labor Department said that the US jobless rate rose to 6.4 per cent in June, up from 6.1 per cent in May and the highest level since April 1994. The figures mean that more than 900,000 jobs have disappeared since March, including 56,000 in the manufacturing sector last month alone. The news came as a nasty pre-Independence Day jolt for the White House, where a solid economic rebound is seen as key to President Bush's re-election strategy for 2004.
"The president continues to be concerned about any American who is looking for work and is unable to find it," said Ari Fleischer, Mr Bush's spokesman.
He acknowledged the economy was managing only "a slow recovery" from the 2000-2001 recession. On Wall Street, the Dow Jones Industrials index responded with a 0.8 per cent decline.
The latest figures perfectly illustrate the current strengths and weaknesses of the US economy. The dismal manufacturing figures reflect GDP growth, which has been stuck around 1.5 per cent since last autumn, amid stagnant corporate investment and feeble performances by Europe and Japan, prime trading partners of the US.
Separate Commerce Department figures yesterday showed a further fall, of 0.4 per cent, in durable goods orders from US factories, always a key indicator of consumer confidence. By contrast the construction sector added jobs for the fourth successive month, on the back of a housing boom fuelled by the lowest interest rates in more than 40 years. These have brought mortgage rates to near-record lows, encouraging Americans to refinance their home loans. The cash released has been a vital prop to consumer spending.
In the last few weeks, optimism has increased for a surge of growth in the second half of 2003 with uncertainty over an Iraq war out of the way, a combination of low interest rates, $50bn of tax rebates due later this year under Mr Bush's recent tax cut package, and a rising stock market.
John Snow, the Treasury Secretary, has predicted that GDP would expand by more than 3 per cent in the second half, while the Wall Street Journal's panel of economists yesterday forecast growth of 3.5 per cent in the third quarter, rising to 3.8 per cent in the fourth. But "it's now or never", one analyst said, noting that with the key Fed funds rate at just 1 per cent, the US central bank had virtually no scope to lower rates further if the economy did not respond to the monetary and fiscal stimulus already on the table.
A likely record federal deficit of $400bn for fiscal 2003 moreover means that new tax cuts are not an option. Worse still, the effect of those which have been enacted is being reduced by spending cuts and tax increases by individual states, many of them facing their worst fiscal crisis in decades. The June jobless figures show that 2 million Americans have been without work for six months, 410,000 more than at the start of the year. The overall jump in the unemployment rate also reflected a rise in the number of people looking for jobs.Reuse content