Consumer Spending Hurt

By Reuters  |  Print this article Print

A new survey from Reuters shows that employment fell for the third straight month in August as U.S. Census jobs ended and business scaled back hiring.

Jobs scarcity is hurting consumer spending, which normally accounts for about two-thirds of U.S. economic activity, leaving the recovery from the worst recession in 70 years sputtering.

Growth slowed markedly in the second quarter and Fed Chairman Ben Bernanke has said the central bank stands ready to take fresh measures to support the economy if needed.

Minutes of the Fed's last policy meeting released this week showed several policymakers felt the outlook would have to deteriorate "appreciably" to spur fresh monetary support.

The Fed slashed overnight interest rates to near zero in December 2008 and has vowed to keep them ultra-low for an extended period to aid the recovery. In addition, it bought about $1.7 trillion in mortgage-related and government debt in a further effort to lower borrowing costs.

Bernanke said last week that further purchases were a top option if officials felt more economic support was needed.

"The economy is in a bit of a lull and gauging how long we are stuck in this rut will determine if the Federal Reserve needs to step in," said Sweet.

The economy's poor health has weakened President Barack Obama's popularity and could see Republicans wrestle control of Congress away from the Democratic Party.

Typically in midterm elections when there is no presidential race the party in power in the White House suffers losses, but analysts say the drubbing Democrats could face may be unusually severe.

The weakness in employment last month was probably spread across all sectors. Employment in the goods-producing sector was likely held back by lackluster manufacturing payrolls, which had received a boost from some automakers who did not shut their plants for the traditional summer break.

While construction employment probably got a lift from the return of 10,000 strikers, the gain was likely neutralized by a downturn in residential construction following the end of a popular homebuyer tax credit.

Employment gains in the dominant service sector were likely muted given tepid spending. However, temporary help services, seen as a harbinger of permanent hiring, probably rebounded after falling in July for the first time since last September.

Analysts believe companies that need to add workers will opt for temporary help given the uncertain outlook and some think the length of the average workweek, which has barely budged this year, could grow longer in a sign employers prefer to add hours for existing workers rather than hire new staff.

However, the median forecast for the average workweek in the Reuters poll is unchanged at 34.2 hours.

(Editing by James Dalgleish)