U.S. Non-Farm Payrolls fell 240K in October following a 284K decline in September, and has certainly raised concerns that conditions may only get worse over the coming months as fears of a global meltdown intensify. In addition, the unemployment rate surged to 6.5% from 6.1% in the previous month to reach its highest level in 14 years.
U.S. Non-Farm Payrolls fell 240K in October following a 284K decline in September, and has certainly raised concerns that conditions may only get worse over the coming months as fears of a global meltdown intensify. In addition, the unemployment rate surged to 6.5% from 6.1% in the previous month to reach its highest level in 14 years. Meanwhile, Manufacturing Payrolls declined 90K during the same period despite expectations for a 65K decline.
The data suggests that private-sector consumption will weaken further as employment opportunities become increasingly scarce, which could lead policy makers to increase their efforts in order to avoid a deep and prolonged recession. Moreover, the larger than expected decline in employment failed to trigger a sell off in the U.S. dollar as the markets were already pricing a turn for the worst in the labor market. Despite the lack of reaction to the dismal data, the growth outlook for the world's largest economy has become increasingly bleak throughout the second half of the year, and economic activity may remain subdued well into 2009.
Forecast for U.S. dollar
There is a growing concern among foreign investors that any politically motivated measure will fail to restore investor’s confidence in the global financial system and given the current market environment of uncertainty and de-leveraging in financial markets, the U.S. dollar is likely to remain vulnerable against lower yielding currencies like the Japanese yen. Moreover, even though the United States Federal Reserve has been taking a number of actions to stabilize financial markets, the U.S. economy will continue to face substantial challenges including further job losses, high energy prices and a rapid deleveraging in the financial sector. In addition, other investors are concerned with the fiscal impact of the bailout plan which could cost almost 5 percent of GDP. Currently, the United States federal government runs a deficit of $438bn, or 3 per cent of gross domestic product and the bailout costs could push the fiscal deficit next year to $1 trillion or 7% of GDP.
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