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Markets slide as US jobs stagnate

• Shares slip on both sides of Atlantic
• George Osborne accused of ‘sitting on hands’
• Obama faces calls to stimulate economy

Stock markets dived on Friday after weak US jobs figures, news of a slump in UK construction orders and further wrangling over the eurozone’s Greek bailout unnerved investors.

The FTSE was down 137 points at 5280 while the US Dow Jones industrial average dropped 2% within minutes of Wall Street opening. Frankfurt and Paris followed the downward trend, with both losing more than 3% of their value.

Politicians on both sides of the Atlantic are expected to come under pressure to reverse the decline in growth rates that is pushing western economies to the edge of a second recession in three years. Declines in business and consumer confidence have hit manufacturing and other key sectors, with knock-on effects for jobs and consumer demand.

Barack Obama, who is due to deliver a speech on employment next Thursday, is expected to face calls to stimulate the economy from his Democrat supporters despite intense lobbying by opposition Tea Party representatives on Capitol Hill.

The chancellor of the Exchequer, George Osborne, has refused to waver in his plans for widespread spending cuts, insisting that his deficit reduction programme has prevented a Greek-style panic.

Economist David Blanchflower, a former member of the Bank of England’s monetary policy committee, accused Osborne of sitting on his hands at an important time for the economy and warned that action was needed to create jobs or Britain could suffer a double dip recession.

His concerns echoed those of Labour Treasury spokesman Ed Balls, who said Osborne should use a G7 meeting in Marseille next weekend to agree a growth strategy to stop Britain and other leading economies from falling back into recession.

Figures from the US labour department showed America failed to create any new jobs in August. Analysts expected at least 75,000 jobs to have been created last month, but the figure came in at zero.

A strike by 45,000 Verizon telecoms workers distorted the August figures – which showed a 48,000 decline in the number of workers in the information services sector – but that was offset by a revision to the July numbers, which showed 58,000 fewer jobs had been created than thought. The US economy needs to add 150,000-200,000 new jobs each month to bring the jobless rate down. It remained at 9.1% last month.

The US labour department said it was the weakest reading since last September, with firms holding off hiring after declines in consumer and business confidence. Few firms made redundancies, but the data showed a freeze on new hirings.

The poor snapshot of the labour market led Goldman Sachs and several other big Wall Street firms to forecast that the US could back further rounds of quantitative easing. Goldman said that the federal open market committee, which determines the policy followed by the US central bank, might extend maturity on the Fed’s .65 trillion of government bond holdings after its policy meeting this month.

“This report will certainly strengthen the case for the doves on the committee going into the next meeting this month,’ said Millan Mulraine, a senior strategist with TD Securities in New York.

Rob Carnell, chief international economist at ING, said the figures would provide further ammunition for those arguing for policy easing. He said it would be difficult to boost consumer demand while the figures showed real wage growth stalling.

“If there are any glimmers of hope, and basically there aren’t, you could point to the smaller decline in the government sector as a potential slowing of public sector job-shedding,” he added. “You could also assume this has bolstered the chances of a new round of quantitative easing from the Fed before the year end.”

Britain’s MPC is also expected to discuss further quantitative easing at its next meeting after one of its chief hawks, Martin Weale, argued that the deteriorating situation in the UK might warrant further support from the central bank.

More problems also emerged in Athens following negotiations between the International Monetary Fund, the EU and the Greek government. Talks were suspended after disagreement on the success of Greek austerity measures, which have already failed to generate the expected savings. The situation worsened after the Finnish government warned that it would only agree to lending Greece further funds if it was given a cash security. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds