US job growth surges,lifts recession fear

US payrolls increased 117,000,the Labor Department said on Friday,above market expectations for an 85,000 gain. The unemployment rate dipped to 9.1 percent from 9.2 percent in June,but this was mostly the result of people leaving the labor force.

The payrolls count for May and June was revised to show 56,000 more jobs added than previously reported

The report was the first encouraging piece of economic data in some time.

Fears that U.S. economy might be sliding back into recession,coupled with Europe’s inability to tame its spreading debt crisis have roiled global financial markets.

Economists see the odds of a recession as high as 40 percent.

US stocks on Thursday suffered their worst sell-off in two years.

Top policymakers at the Federal Reserve will sift through the report when they meet on Tuesday but are not expected to announce any new measures to support the sputtering recovery.

The US central bank has cut interest rates to zero and spent $2.3 trillion on bonds. Policymakers have said they want to see how the economy fares before taking any further action.

GROWTH HAS STALLED

US growth stalled in the first half of 2011,fanning fears of a new downturn. Gross domestic product grew at a 1.3 percent annual pace in the second quarter after a scant 0.4 percent rise in the first three months of the year.

A stand-off between Democrats and Republicans over raising the country’s debt ceiling poisoned the atmosphere for employers and consumers. The economy’s poor health has eroded President Barack Obama’s popularity among Americans and could hurt his chances of reelection.

The borrowing limit was raised this week in a deal that relied on spending cuts. Economists estimate the budget cuts and expiring stimulus — including a payroll tax cut and emergency unemployment benefits — could subtract more than a percentage point from GDP growth next year.

PRIVATE HIRING STEPS UP

All the gains in non-farm employment in July came from the private sector,where payrolls rose 154,000 — an acceleration from June’s 80,000 increase and more than the 115,000 expected by economists.

Government payrolls dropped 37,000 in July,a ninth straight month of job losses. The drop was mostly due to a government shutdown in Minnesota that left thousands of state workers without pay checks during the survey period for July payrolls.

With looming budget cuts at the federal government level and state and local governments still tightening their belts,the burden of job creation falls on the private sector.

Within the private sector,most of the job gains were concentrated in the services sector. Temporary help — a harbinger of permanent hiring – rebounded modestly after declining for three straight months.

Manufacturing payrolls rose 24,000 after increasing 11,000 in June. Most the gains came from the auto sector. Construction employment increased 8,000 after dropping 5,000 in June.

The average work week was steady at 34.3 hours,but average hourly earnings rose 10 cents.

Instant view: US jobs growth lift recession fear

U.S. job growth accelerated more than expected in July as private employers stepped up hiring,a development that could ease fears the economy was sliding into a fresh recession.

COMMENTS:

DAVID COARD,HEAD OF FIXED INCOME TRADING,THE WILLIAMS CAPITAL GROUP,NEW YORK:

“We have come such a long way in such a short time on Treasuries that even if we had a print that was right on top of the median or consensus number,we probably would have seen a relief rally. This is not a number to write home about because I think you still have to create somewhere in the neighborhood of 150,000 jobs to just meet population growth but it was better than expected and most people expected a bad number. I don’t think that the economy is out of the woods by any stretch but it is just that we expected really bad things and they weren’t quite as bad so we are relieved.”

DENNIS DICK,DETROIT-BASED MARKET STRUCTURE CONSULTANT AND TRADING MEMBER AT BRIGHT TRADING LLC

“They like any good news off the top here. I don’t think the (jobs) number is that great,but we obviously sold off so much that they’re just looking for anything that’s not that bad.”

“I’d be scared to dip my toes in here yet. It’s a little early to predict.”

GENNADIY GOLDBERG,FIXED INCOME ANALYST,4CAST INC.,NEW YORK

“In the broader scheme of things it’s really not quite as stunningly high as we would hope for but it’s definitely a positive surprise. The positive revisions to last month are also a good thing.

“We would have to see a few months of job gains at a higher level than this to correct the trend higher.

“Right now Treasuries are just chopping around,which is quite interesting. They predictably fell right after the release but they’re reluctant to fall too much because the trend is still weaker.

“The Fed will probably comment on recent developments but they normally don’t get very excited about one data print. Maybe they will use it to justify the idea that things aren’t as bad as the market thinks.”

MICHAEL GAPEN,SENIOR U.S. ECONOMIST,BARCLAYS CAPITAL,NEW YORK

“I wouldn’t say that (a double dip recession) is totally off the table but it’s a much better number than the market had priced in. It’s a number that is likely to give policymakers some comfort that the poorest months were May and June.

“It likely means that the fed doesn’t take action next week. It doesn’t allow us to totally turn the corner and put all of this behind us but it’s a much better than expected number.”

MICHAEL MARRALE,MANAGING DIRECTOR,AND HEAD OF SALES TRADING AT RBC CAPITAL MARKETS IN NEW YORK

“Doesn’t solve anything. View it more as a selling opportunity rather than a reason to get back involved on the long side. The prior revision up is encouraging but at the end of the day,we are coming off the back of last Friday’s weak GDP number,Monday’s ISM report and we are starting to hear some company commentary that we may be heading into or already be in a recession.”

“We did trade as low as 1182 on the S&P futures overnight,the futures coming back were a function of not only concern that the number would be OK,but also some concern on behalf of the shorts that the ECB could make an announcement over the weekend,which would rally the markets. So in the futures markets there has definitely been some short covering ahead of the number and ahead of the weekend.”

ERIC STEIN,PORTFOLIO MANAGER,EATON VANCE,BOSTON

“It’s definitely stronger than expected. It’s not robust by any stretch of the imagination,but compared to a market that was nervous beforehand it’s a relief. In the context of a normal recovery it’s not a strong number,but in the context of the fear that’s been permeating the market it’s not a terrible number.”

JAY FEUERSTEIN,CHIEF INVESTMENT OFFICER OF 2100 XENON GROUP IN CHICAGO

“These are pretty good numbers. Revision is up and it is stronger than expected across the board. I don’t think this is enough to bring us out of a slowdown,but these are not recessionary numbers.

“In the short run,markets will react positively,but then it will become about the forward perception. How will they be going forward? How will recent events impact next month’s read?”

DAVID SLOAN,ECONOMIST,IFR ECONOMICS

“July’s payrolls should provide a sigh of relief to those fearing a move back into recession. The 117k increase is not dramatically above expectations for a rise of 85k,but it contained upward revisions to the two preceding months,a fall in unemployment to 9.1% from 9.2% which was expected to be unchanged,and a 0.4% rise in average hourly earnings that was significantly above a 0.2% consensus. The data suggests the economy,while far from strong,is going to see some improvement from the weak pace seen in the first half of the year.”