Disappointing job growth may hurt US dollar
Last Friday, the US Labor Department reported disappointing job growth in September, something that seems to be becoming a habit. It now looks increasingly likely that the value of the US dollar must fall to both redress the current account deficit as well as revitalise job creation in the United States.
The US Labor Department report shows that payrolls grew by just 96,000 in September. Economists had predicted net job growth of about 150,000 in September. The unemployment rate held at 5.4 percent as 221,000 job seekers dropped out of the labor pool.
Government hiring provided 37,000 net new jobs. Job growth was strong in various service sector categories such as professional and business services, financial services and leisure and hospitality. But growth was weighed down by losses in manufacturing, retail and information services. The manufacturing sector shed 18,000 net jobs in September and has lost 2.7 million jobs overall since President George Bush took office.
August payrolls were revised down to 128,000 from the 144,000 reported last month. July's payrolls were revised up by 12,000 to 85,000.
The Labor Department estimated that payrolls for the year ended March 2004 could be 236,000 higher than previously estimated. It also thinks that the four hurricanes striking Florida and other coastal states in the past two months appear "to have held down employment growth, but not enough to change materially" the national jobs picture.
The weakness in job growth, especially in manufacturing, is a reminder that the strength of the US dollar remains a headwind in output and job creation, as I had pointed out in "Weaker dollar may help US economy but is no panacea". It reinforces the point made by Dallas Fed President Robert McTeer on Thursday at an event hosted by Market News International, when he said that the US current account deficit can only be corrected by a weaker US dollar. "Over time, there is only one direction for the dollar to go -- lower," he said in response to a question.
And it looks increasingly likely that that will happen. A 6 October report from economics and market research firm Forecast provides some evidence that suggests that Asian central banks, the biggest buyers of US Treasuries and, hence, the biggest supporters of the US dollar, have already started diversifying their reserves.
In the report, Forecast research director Alan Ruskin, points out that most of the big Asian central bankers have seen "a widening gulf between their reserves growth and the respective purchases of Treasuries and Agencies". The biggest gap is seen in the Chinese data that shows 12-month rolling net purchases of Treasuries and Agencies of just US$25bn compared to reserve growth of US$113bn over the same period (the latter figure excludes $45 billion injected in bank bail-outs).
Ruskin also highlights that other countries with growing gaps between their reserve growth and the purchases of Treasuries and Agencies over the same period include South Korea, where reserves were up US$35 billion over a period when purchases of Treasuries and Agencies were US$10.5 billion, and Singapore, where reserves rose US$13 billion compared to Treasury and Agency purchases of US$3 billion.
While these figures do not provide a complete picture, they suggest that the Asian central banks are diversifying their foreign reserves away from the US dollar. With diminished purchases of US assets from this important source of US dollar support, the currency looks likely to be headed for a decline.
One that American workers, especially in the manufacturing sector, may welcome with a sigh of relief.
The US Labor Department report shows that payrolls grew by just 96,000 in September. Economists had predicted net job growth of about 150,000 in September. The unemployment rate held at 5.4 percent as 221,000 job seekers dropped out of the labor pool.
Government hiring provided 37,000 net new jobs. Job growth was strong in various service sector categories such as professional and business services, financial services and leisure and hospitality. But growth was weighed down by losses in manufacturing, retail and information services. The manufacturing sector shed 18,000 net jobs in September and has lost 2.7 million jobs overall since President George Bush took office.
August payrolls were revised down to 128,000 from the 144,000 reported last month. July's payrolls were revised up by 12,000 to 85,000.
The Labor Department estimated that payrolls for the year ended March 2004 could be 236,000 higher than previously estimated. It also thinks that the four hurricanes striking Florida and other coastal states in the past two months appear "to have held down employment growth, but not enough to change materially" the national jobs picture.
The weakness in job growth, especially in manufacturing, is a reminder that the strength of the US dollar remains a headwind in output and job creation, as I had pointed out in "Weaker dollar may help US economy but is no panacea". It reinforces the point made by Dallas Fed President Robert McTeer on Thursday at an event hosted by Market News International, when he said that the US current account deficit can only be corrected by a weaker US dollar. "Over time, there is only one direction for the dollar to go -- lower," he said in response to a question.
And it looks increasingly likely that that will happen. A 6 October report from economics and market research firm Forecast provides some evidence that suggests that Asian central banks, the biggest buyers of US Treasuries and, hence, the biggest supporters of the US dollar, have already started diversifying their reserves.
In the report, Forecast research director Alan Ruskin, points out that most of the big Asian central bankers have seen "a widening gulf between their reserves growth and the respective purchases of Treasuries and Agencies". The biggest gap is seen in the Chinese data that shows 12-month rolling net purchases of Treasuries and Agencies of just US$25bn compared to reserve growth of US$113bn over the same period (the latter figure excludes $45 billion injected in bank bail-outs).
Ruskin also highlights that other countries with growing gaps between their reserve growth and the purchases of Treasuries and Agencies over the same period include South Korea, where reserves were up US$35 billion over a period when purchases of Treasuries and Agencies were US$10.5 billion, and Singapore, where reserves rose US$13 billion compared to Treasury and Agency purchases of US$3 billion.
While these figures do not provide a complete picture, they suggest that the Asian central banks are diversifying their foreign reserves away from the US dollar. With diminished purchases of US assets from this important source of US dollar support, the currency looks likely to be headed for a decline.
One that American workers, especially in the manufacturing sector, may welcome with a sigh of relief.
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