US president predicts agreement on nation's debt ceiling will give companies the confidence to recruit workers again
Barack Obama has blamed political wrangling over the US debt ceiling for a jump in unemployment to 9.2%.
The US president warned that uncertainty over a deal being hammered out between Republicans and Democrats, which involves plans to raise taxes, cut government spending and stimulate the economy, is stopping businesses hiring.
His comments follow figures that show employers last month hired the fewest workers for nearly two years, crushing hopes of a turnaround in the jobs market, and adding to jitters to world stock markets. Companies added only 18,000 jobs in June, the US labour department said, compared with the 90,000-120,000 that had been forecast. It was the weakest reading since September 2010.
Speaking at the White House, Obama said that once Congress reached an agreement on the debt ceiling, businesses would have the confidence they needed to add workers to their payroll.
Austan Goolsbee, head of the president's council of economic advisers, added that the jobs report showed 'the need for bipartisan action to help the private sector and the economy grow – such as measures to extend the payroll tax cut, pass the pending free trade agreements and create an infrastructure bank to help put Americans back to work'.
He said: 'It also underscores the need for a balanced approach to deficit reduction that instils confidence and allows us to live within our means without shortchanging future growth.'
In London, The FTSE 100, which was up about 27 points before the release of the June payroll figures, dropped more than 55 to 5,998.81 as investors fretted about the global impact of a US slowdown.
The private sector added 57,000 jobs last month – against expectations of 110,000 – and the government shed 39,000.
Rob Carnell, of ING bank, described the figures as 'absolutely awful' and said they would 'rock' the markets.
Markets analyst Louise Cooper said: 'There was a collective gasp on the trading floor here at BGC when the non-farm payrolls number was released ... This number is worrying.'
America was the country where flexible employment laws were supposed to ensure that, in an economic recovery, people were re-employed quickly and easily. 'Eighteen thousands jobs created in a country of 400 million people with a 9.2% unemployment rate means that more needs to be done. But what?
'[Regarding] monetary policy – the federal funds target rate is already at 0.25% – [there is] no room to cut there and QE2 [the second round of quantitative easing] finished last week. [With] $14tn debt and the deadline for the budget deal on 2 August, fiscal policy is tightening. Most economists are expecting a rebound to the US economy in the second half of the year [and] this number will cause them to return to their models.'
The labour department also revised May's disappointing job creation figures down, to 25,000 (previous estimate: 54,000), and the figures for April down to 217,000 (previous estimate 221,000).
The figures are particularly disappointing after strong job creation figures on Thursday prompted many analysts to raise their forecast for Friday's figures, from a consensus of 90,000 to 120,000. Those figures, from American payroll processor ADP, said that the private sector added 157,000 jobs last month – more than double the number expected and dwarfing the 36,000 jobs added in May.
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