US jobs data puts dollar in the doldrums

The United States economy created far fewer jobs than expected last month, sending the dollar to fresh record lows against the euro and raising new questions for the Federal Reserve's interest rate policymakers when they meet later this month.

The United States economy created far fewer jobs than expected last month, sending the dollar to fresh record lows against the euro and raising new questions for the Federal Reserve's interest rate policymakers when they meet later this month.

Although the headline unemployment rate dipped to 5.4 per cent from 5.5 per cent, the Labor Department said that non-farm payrolls increased by only 112,000 in November, much lower than market analysts' expectations of 200,000. The economy needs to create some 150,000 new jobs a month simply to keep pace with an expanding population.

The new figures will add to fears that the US recovery may be losing steam, amid falling consumer confidence. Already Wal-Mart, the world's biggest retailer, and other store groups have reported a disappointing start to the all-important Christmas sales season.

The weak jobs performance in part reflected a tapering off in emergency construction work in Florida and other south-eastern states after the summer's hurricanes. More worrying, the economy lost another 5,000 manufacturing jobs, dashing hopes that industry was turning the corner.

After the announcement the dollar immediately resumed its slide. It fell to a new low of $1.3399 against the euro while sterling rose to $1.9340.

The expectation is still that the Fed's policy-setting Federal Open Market Committee will nudge its benchmark short-term rate upwards by a further 25 basis points at its meeting on 14 December. But some Fed officials believe that a pause is now in order, after four consecutive monthly increases, lifting the federal funds target rate to 2 per cent from the historic low of 1 per cent earlier this year.

But with US interest rates lower than those in Europe, a decision to keep rates steady could provoke more selling of the dollar. If this got out of hand, the central bank could be forced to raise rates suddenly and sharply, hurting Wall Street and cutting short the present steady recovery in the US.