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losses has boosted hopes that the world's biggest economy is
emerging from the grip of recession, analysts say. The jobless
rate fell one-tenth of a point to 9. 4 per cent in July as job losses
narrowed to 247, 000 from 443,000 in June, a Labour Department report
showed. The report provides a clear signal that the labour market
and the economy have likely turned the corner after a brutal
recession that began in December 2007, said analysts. 'With the
fall-off in the pace of job losses appearing to be gaining some
traction and the improved tone of other economic reports, it appears
that the US recession may well be in its last throes,' said Millan
Mulraine, economic strategist at TD Securities. 'In fact, given
the recent flow of economic reports, it is now conceivable that the
US economy may post its first quarterly growth for some time in the
third quarter.' This report and other upbeat data 'reinforce our
view that the US recession ended in June,' said Dean Maki, economist
at Barclays Capital, which is calling for growth at a 3.5 per cent
pace in the third quarter. 'After a period of massive wealth
destruction, consumers are building savings and reducing borrowing.
As the labour market begins to heal and financial wealth recovers, we
believe this will support a subdued recovery in consumer spending.'
The report 'confirms that the recession is certainly diminishing in
intensity if it hasn't ended already,' said Peter Kretzmer, senior
economist at Bank of America. 'It appears unemployment may have hit
its peak. We are starting to see the signs of a turning point, but
it will take some time for job losses to diminish.' Robert Brusca
at FAO Economics went further. 'The jobs turnaround is actually
about as rapid as you could hope to see,' he said. 'The transition
from job losses to gains could come as soon as August.' Other
analysts warned against celebrating too quickly for an economy in
which payroll employment has fallen by 6.7 million since the
recession began. Eugenio Aleman, a senior economist at Wells
Fargo, explained the shock figures by saying that a significant
number of disenchanted workers had left the labour force and were not
therefore listed as unemployed. Those in the labour force fell by
422,000. 'I was surprised about the unemployment number coming
down to 9.4 per cent, but that was because of people dropping out of
the labour force, so that is probably not going to be repeated in
the future,' Aleman said. He argued that the jobless rate will
likely rise in the coming months, 'because all those people who have
been out of the labour force are going to come in because of better
job prospects.' Unemployment could still hit as high as 10 per
cent, even with an improving economy, he warned. Joseph LaVorgna,
economist at Deutsche Bank said the report suggests a fragile
recovery is underway. One key is that aggregate hours
worked—sometimes seen as a proxy for economic activity—edged higher
overall and in the factory sector. 'The rise in the workweek,
small gain in earnings and smaller than expected decline in payrolls
suggest personal income may be on the cusp of flattening out,' he
said. 'We are still targeting 10 per cent unemployment by year
end, but we are beginning to wonder whether the unemployment rate
has peaked ...the general tone of the labour market indicators became
considerably less negative last month.' LaVorgna is forecasting
second-half growth of 2.25 per cent and a likely acceleration in
2010, helped by the Federal Reserve's easy money policies. 'As
long as the Fed does not pre-emptively raise interest rates, a
self-sustaining economic recovery should soon be underway,' he said.
President Barack Obama jumped on the data to suggest his
administration had saved the US economy from catastrophe and that the
worst of the recession may be over. 'While we have rescued our
economy from catastrophe, we have also begun to build a new
foundation for growth,' he said.
