Stephen Foley: America's jobs challenge

US Outlook: The latest US employment figures present a paradox: they were disappointing, but as a result we can actually be more optimistic about the recovery under way.

Financial markets' reaction to the data provided an immediate windfall to the banking system, bringing closer the time when lending to small business might increase and finally kickstart the engines of the US economy.

December didn't prove the turning point for the labour market that some had hoped, but it looked more like a delay than a reversal of trend. In fact, a "good" number might have obscured the fact that an unemployment rate of 10 per cent is still unacceptably bad. At least now there will be no less steel among the politicians pursuing a jobs stimulus, the programme of tax breaks and government make-work schemes that is soon to emerge from Congress.

Anticipation of the increased borrowing needed for this stimulus drove up the yield on 10-year Treasuries yesterday. Meanwhile, markets were also assured of an extended period of zero interest rates from the Federal Reserve, so the yield on short-dated government borrowing was lower. Indeed, the gap between two-year and 10-year yields was back close to a record, a steep yield curve that means more profit opportunities for banks.

And profit opportunities, more than any exhortations from politicians, the press or the public, are what will get banks lending again.