Forex Special As I may have mentioned before, the re-hiring of workers lags behind the economic recovery, so when employment figures start to pick-up, it is a convincing sign that the recession is truly over. Conversely, when unemployment figures worsen, it usually means that the worst effects of the recession have still not completely bled through the system. Analysts always cautioned that the global financial crisis would be followed by a slow recovery phase and some concluded that a second recessionary wave may be inevitable (a “double-dip” recession). Figures just released in the USA have shown that a further 125 000 people have lost their jobs during the month of June. The news has contributed to the recent mood of pessimism that has been gripping international markets recently. The figures bring to an end an eight month run where employment in the US was trending down.
The June figures were largely attributable to the ending of 225 000 temporary jobs in May which had been created by the US census. The positive news was that 83 000 jobs were created within the private sector in June; good news, but a lower rate than seen in March and April. US unemployment actually fell from 9.7 to 9.5% last month, a fact which was attributed to the number of people who had ceased actively searching for work and were therefore no longer officially considered to be unemployed.
High unemployment has a negative effect on consumer confidence at home; and since two-thirds of US economic activity is based on domestic demand, it is critical to the US recovery. This is a “Catch 22” type of situation inasmuch as unemployment fear stifles demand, but re-employment can’t get up a good head of steam until demand returns to the economy.