Friday, May 2nd, 2008

US Economic & Currency News

WASHINGTON (AP) - Employers cut far fewer jobs in April than in recent months and the unemployment rate dropped to 5 percent, a better-than-expected showing that nonetheless reveals strains in the nation's labor market.

For the fourth month in a row, the economy lost jobs, the Labor Department reported Friday. But in April the losses totaled 20,000, an improvement from the 81,000 reductions in payrolls logged in March. Job losses for both February and March turned out to be a bit deeper than previously reported.

The latest snapshot of the nationwide employment conditions—while clearly still weak—was better than many economists were anticipating. They were bracing for job cuts of 75,000 and for the unemployment rate to climb to 5.2 percent.

The unemployment rate, derived from a different statistical survey than the payroll figures, fell to 5 percent from 5.1 percent in March. That survey showed more people finding employment than those who didn't.

Businesses are handing out pink slips as they cope with an economy that is teetering on the edge of a recession, or possibly in one already. A severe housing slump, harder-to-get credit and financial turmoil have forced people and businesses to be more cautious in their spending. And that has hurt the economy.

To help relieve credit problems, the Federal Reserve announced Friday that it would boost the availability of short-term loans to commercial banks to $150 billion in May from the $100 billion supplied in April. The goal is to supply a source of cash to squeezed banks so that they'll keep lending to customers.

The Fed took the action and several other moves to boost credit in coordination with the European Central Bank and the Swiss National Bank.

In other economic news, the Commerce Department reported that orders to U.S. factories rose a bigger-than-expected 1.4 percent in March, after two straight months of declines.

The fresh economic news lifted Wall Street. The Dow Jones industrials were up more than 50 points in morning trading.

On the jobs front, construction companies slashed 61,000 positions in April. Manufacturers cut 46,000 and retailers got rid of 27,000. Those losses were eclipsed by job gains in education and health care, professional and business services, the government and elsewhere.

The job losses came in areas hardest hit by the housing and credit debacles. The fact that fewer job cuts were ordered in April raised hopes that damages could be limited.

"A decline in job growth is never welcome but the economy does seem to be showing some resilience," said White House spokesman Tony Fratto. Echoing that sentiment, Commerce Secretary Carlos Gutierrez, in an interview with The Associated Press, said the new job figures are "sort of bittersweet—better than expected but we're still going through a difficult first half."

Voters are keenly worried about the country's economic problems and so are politicians—in Congress, in the White House and on the campaign trail.

There were 7.6 million people unemployed as of April, up from 6.8 million a year earlier.

Workers with jobs saw scant wage gains.

Average hourly earnings for jobholders rose to $17.88 in April, a tiny 0.1 percent rise from the previous month. That was less than the 0.3 percent rise economists were forecasting. Over the last 12 months, wages have grown by 3.4 percent.

The weak labor market is making employers feel less generous with compensation.

Meanwhile, zooming energy and food prices are taking a bite out of paychecks. If the job market continues to falter, wage growth probably will slow, too, making people even less inclined to spend. That would spell further trouble for the economy.

The payrolls figure and the unemployment rate come from two different statistical surveys, which can provide—as in Friday's case—a somewhat conflicting picture of what is happening in the labor market.

The seasonally adjusted overall civilian unemployment rate—5 percent in April—is based on a survey of 60,000 households. It showed that 362,000 people said they found employment last month, outpacing the number of people who couldn't find work.

Economists tend to put more stock, however, in the much broader business survey of 400,000 work sites that is used to calculate the payroll figures.

To limit damage to the economy, the Federal Reserve lowered interest rates on Wednesday, but signaled that its rate-cutting campaign could be drawing to a close.

The new employment report "will make the Fed feel more comfortable about the pause in rate cuts .. but can't be taken as a signal that the economy is out of the woods," said Nigel Gault, economist at Global Insight.

Fed officials and the Bush administration are hoping that the Fed's aggressive rate cuts since September plus the government's $168 billion stimulus package—including tax rebates that started hitting bank accounts this week—will lift the country out of its slump in the second half of this year.

Even if that happens, economists predict the unemployment rate will climb higher, hitting 6 percent early next year.

Employers often are reluctant to beef up hiring until they feel certain that any such recovery has staying power.

Democrats in Congress insist more relief needs to be provided, including additional unemployment benefits to cushion the pain of joblessness. The administration has resisted, saying the rebates and other stimulative efforts should be sufficient once they fully kick in.

Sen. Charles Schumer, D-N.Y., said he doesn't want the administration to view the new employment figures as a "green light" for not supporting more relief.

Fed Chairman Ben Bernanke and his colleagues acknowledged Wednesday the fragile state of the economy, saying hiring conditions "have softened further."

The economy advanced at a snail's pace of just 0.6 percent in the first three months of this year as people and businesses clamped down on their spending. It marked the second quarter in a row of such feeble growth.

A growing number of economists believe the economy is in a recession and is indeed contracting now.

Under one rough rule, if the economy contracts for six straight months it is considered to be in a recession. That didn't happen in the last recession—in 2001_ though. A panel of experts at the National Bureau of Economic Research that determines when U.S. recessions begin and end uses a broader definition, taking into account income, employment and other barometers. That finding is usually made well after the fact.

Futures Traders Bet on Dollar Gain For First Time Since 2005

By Bo Nielsen and Ye Xie

May 2 (Bloomberg) -- Futures traders are betting for the first time since December 2005 that the dollar will gain against the euro.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, known as net shorts, was 21,315 on April 29, compared with net longs of 18,907 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.

``The dollar has already turned against the euro,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. ``The dollar will go to $1.52 in a straight line.''

The dollar increased 0.3 percent to $1.5424 per euro at 5 p.m. in New York, from $1.5474 yesterday. It touched $1.5361, the highest level since March 24.

The dollar rose 1.3 percent against the euro this week, its biggest rally since March, and has appreciated 3.6 percent from a record low of $1.6019 reached on April 22. It's the first time the dollar has posted two weeks of gains since December.

The currency rose after the Federal Reserve cut interest rates on April 30 and said ``substantial'' easing since September would help foster growth. The Labor Department reported today that U.S. employers eliminated fewer jobs in April than forecast, indicating the labor market is weathering the economic slowdown.

Payrolls shrank by 20,000 last month following a revised decline of 81,000 in March. The median forecast of 82 economists surveyed by Bloomberg News was for a drop of 75,000.

The yield advantage of two-year German bunds over comparable-maturity Treasuries has decreased to 1.40 percentage points from 1.85 percentage points on March 31, making dollar- denominated assets more attractive to investors.

The U.S. Dollar Index, which measures the currency against six major counterparts, touched 73.698, the highest level since March 5. The index fell to 70.698 on March 17, the lowest level since its 1973 inception.

To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net

Last Updated: May 2, 2008 17:27 EDT

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