'W-shaped' recovery haunts US economy

Dashing hopes that America was pulling smoothly out of its toughest postwar economic setback, the commerce department revealed that the expected pre-Christmas hiring spree had failed to materialise.

Wall Street had been expecting fresh evidence that low interest rates and higher government spending were bringing a halt to the job losses that have sent the US unemployment rate spiralling to 10 per cent —– its highest level since the early 1980s. Revisions to November’s payroll data showed the first jobs growth —– a 4,000 increase —– in more than two years. But the dollar, shares and oil prices fell back when the December figures were published.

Since the start of the financial crisis in August 2007, the Federal Reserve had cut interest rates to barely above zero and created new electronic money in order to kickstart growth. Analysts said the poor employment numbers meant there was little chance of the US central bank raising rates in the near future, and that was leading to pressure on the dollar. Amelia Bourdeau, senior currency strategist at UBS, said “It was disappointing. The market had been looking for a flat to slightly positive result and investors had been wondering whether or not the market would price in rate hikes sooner than expected.

“That won’t be the case. So what we’re getting is a weak dollar reaction. I think we’ll see selective risk-seeking now, as this number will suggest the Fed won’t be hiking rates earlier than the second half.” Dan Cook, analyst at IG Markets in Chicago, said “It’s a surprise. I didn’t think we’d see something like this until February. I thought we’d have more temporary workers, and the other job indicators we had seemed fairly positive.