US unemployment begins to ease

Job losses that could derail the recovery are still rising, but at a slower pace
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The Independent Online

The private sector was still shedding jobs in the US in December, but at the slowest pace since the recession began, according to a survey used as a precursor to the official unemployment figures out tomorrow. And a separate survey showed that the decline in service sector jobs had also abated, although not as much as hoped.

The latest data is being pored over by economists concerned that stubbornly high unemployment in the world's largest economy could eventually derail the recovery. The bigger picture will be pieced together over the coming months, when it will become clear if government efforts to stimulate the economy have sparked a real return of confidence among employers following the worst slowdown since the Second World War.

ADP, a consulting firm, said that the US private sector shed 84,000 jobs last month, the smallest number since March 2008. The November figure of 169,000 job losses was also revised lower, to 145,000, with each figure coming out better than the consensus of Wall Street forecasts.

The Institute for Supply Management published the latest index of service sector activity, which was 50.1, up from 48.7 for November but shy of economists' forecasts of 50.5. Any reading above 50 represents expansion, meaning that the service sector – the largest part of the US economy – grew for only the second month out of the past 16.

An important component of the ISM survey, the service-sector employment index, showed a reading of 44.0, better than the 41.6 of November. It has been showing readings below 50 for two years. The four industry groups actually adding jobs were retail, finance and insurance, public administration and what is called other services.

The sustainability of expansion in the service sector will be debated this morning as retailers begin to post their December sales figures. Anecdotal evidence suggests that most stores held off on offering large discounts to lure shoppers, leading analysts to predict moderately positive sales figures and a better improvement in profits.

Dan Greenhaus, chief economic strategist at Miller Tabak, said there was a worrying distinction between the manufacturing and non-manufacturing sectors of the US economy.

"Manufacturing, which is 12 per cent of the economy, has seen a clear, V-shaped recovery in production levels thanks in part to government support and a reduction in inventory drawdowns," he said.

"The service sector though, which is the far more vital part of the economy, has not rebounded as robustly and has been treading water since September."

The most keenly awaited data this week is the Labour Department jobs report tomorrow, which is expected to show that the economy lost just 8,000 jobs in December, the fewest since the recession began in December 2007. The economy shed 11,000 in November, fewer than expected, reducing the unemployment rate to 10 per cent.

The unemployment data is considered the most important indicator of the economy's path in 2010 because the US consumer accounted for two-thirds of domestic economic activity before the recession hit.

Consumer spending and confidence have been battered because of the speed with which employers moved to slash jobs, curb workers' hours and negotiate down pay.