News / Economy

US Jobs Data Adds To Global Recession Fears

US Jobs Data Adds To Global Recession Fearsi
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Mil Arcega
July 07, 2012
Stock prices retreated on Friday following another weak U.S. jobs report. U.S. companies added only 80,000 jobs last month, the third straight month of tepid job growth. Although the unemployment rate held steady at 8.2 percent, the weaker than expected employment numbers are adding to worries that the global recovery is running out of gas. Mil Arcega has more.

US Jobs Data Adds To Global Recession Fears

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Stock prices retreated on Friday following another weak U.S. jobs report.  U.S. companies added only 80,000 jobs last month, the third straight month of tepid job growth.  Although the unemployment rate held steady at 8.2 percent, the weaker than expected employment numbers are adding to worries that the global recovery is running out of gas.

The U.S. government's closely-watched monthly employment report has become an important barometer of the state of the world's largest economy.  Combined with the debt crisis in Europe, and manufacturing slowdowns in Asia, Friday's jobs report paints a picture of a global economy in decline.

"The U.S. economic recovery remains tepid and downside risks have intensified," said the International Monetary Fund's Managing Director, Christine Lagarde..

The risks include a sharp decline in business confidence, due to the failure of European leaders to find a comprehensive solution to what is now a three-year-old crisis.  But Standard and Poor's Chief Equity Strategist Sam Stovall says it's not entirely the fault of Europe's leaders.

"I think politicians here in the U.S. as well have not done their job of instilling confidence on Wall Street as well as on Main Street and giving businesses reason to expand," Stovall said.

Both Lagarde and Stovall point to political discord in the U.S. Congress, and the possibility that lawmakers will once again be unable to agree on a deficit cutting plan and the expiration of tax cuts by the end of the year. Should that happen, Stovall believes the Federal Reserve is likely to step in with a third round of Quantitative Easing -- essentially pumping more dollars into the economy to stimulate growth.

"If the politicians allow us to fall off the fiscal cliff because of the sequestration, the forced cuts to medicare, to spending as well as the increases in taxes which the Congressional Budget Office has said, would likely throw us into recession," Stovall said.

Despite an increasingly dismal outlook and a Europe that most economists believe is already shrinking, Stovall says the risk of a much larger global recession remains small.

"Investors and people on Main Street are very worried that we slip back into recession, if not on our own, then at least dragged into it because of Europe and because of China, but right now the belief is that no, we probably will be able to skirt it," Stovall said.

The ratings agency projects China's economy will grow around 8 percent this year, with the U.S. economy picking up strength in the second half of 2012 with about 2 percent growth.

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