Turn in US jobs data boosts recovery hopes

The jobless rate fell one-tenth of a point to 9.4 percent in July as job losses narrowed to 247,000 from 443,000 in June, a Labor Department report showed.

The report provides a clear signal that the labor 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 percent pace in the third quarter.

“After a period of massive wealth destruction, consumers are building savings and reducing borrowing. As the labor 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 labor force and were not therefore listed as unemployed. Those in the labor force fell by 422,000.

“I was surprised about the unemployment number coming down to 9.4 percent, but that was because of people dropping out of the labor 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 labor force are going to come in because of better job prospects.”

Unemployment could still hit as high as 10 percent, 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 percent unemployment by year end, but we are beginning to wonder whether the unemployment rate has peaked ...the general tone of the labor market indicators became considerably less negative last month.”

LaVorgna is forecasting second-half growth of 2.25 percent and a likely acceleration in 2010, helped by the Federal Reserve’s easy money policies.

“As long as the Fed does not preemptively 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.