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September 07, 2012

Weak US Employment Report Could Force Central Bank Action

by VOA News

U.S. business analysts say that Friday's weak employment report could push the country's central bank to adopt new measures next week to spur job growth and boost the sluggish economy.

The government reported that the American labor market added only 96,000 new jobs in August.  While the jobless rate fell from 8.3 percent to 8.1 percent, that was largely because thousands of unemployed workers abandoned their search for a job.  As a result, they were not counted as part of the labor force and the declining unemployment rate.

Economist Steve Fazzari at Washington University in St. Louis said the meager job growth coupled with the reason for the declining jobless rate make it more likely the Federal Reserve will act to cut key long-term interest rates, which already are very low.

"With this relatively weak report, and I think that’s the way it's going to be interpreted, it makes it even more likely that the Fed will take some actions to lower long-term interest rates even further," said Fazzari.

Job growth has become a key point of contention in the close presidential election campaign between the Democratic incumbent, President Barack Obama, and his Republican challenger, Mitt Romney.  Fazzari said the lack of significant job growth is troubling.

"We're still stagnating," he said. "We're not creating enough jobs in the economy to even keep up with population growth.  So, yes, we are growing, rather than shrinking.  So that's a positive and that's certainly what the Obama campaign's going to emphasize.  But we're not really doing any kind of catch-up.  We lost so many jobs in 2008 and 2009, and we're just rumbling along the bottom, as far I'm concerned."

Another analyst, finance professor Rebel Cole at DePaul University in Chicago, emphasized that the drop in the unemployment rate is misleading.

"Unfortunately, most people are going to focus on the drop in the unemployment rate from 8.3 percent to 8.1 percent," said Cole. "And that’s unfortunate, because it’s badly misleading.  The unemployment rate fell because over 350,000 people dropped out of the labor force.  In other words, the situation is so bad that workers are simply giving up and leaving the labor force.  Since last year at this time, about 2.7 million workers have lost faith and left the labor force.  So that has masked the true unemployment rate, which would be closer to double digits were those people still counted."

Cole said he is not sure that the Federal Reserve will adopt new policies next week, but said that with the poor employment report, the "probability just went way up."

Cole said the central bank has signaled that it might purchase mortgage-backed securities in an attempt to cut already-low interest rates on home purchase loans.  But Cole said he does not see the connection between housing loan interest rates and the creation of more jobs.

"The problem with that is that I don't think that mortgage rates are too high," he said. "I don't see how that's really going to help the job market.  Most people who can refinance have refinanced."