Washington: Pacific Investment Management's (Pimco) Bill Gross and David Rosenberg, chief economist at Gluskin Sheff & Associates, said June's employment report indicates sluggish job growth and a slowing economy.
"That's a statistical illusion because you had this precipitous fall-off for the second month in a row in the labour force and without that, the unemployment rate would have gone up to 10 per cent," Toronto-based Rosenberg said during a radio interview on Bloomberg Surveillance with Tom Keene. "You can go as high as 16.5 per cent, if you count the unemployed and under- employed."
The pace of hiring signals it will take years for the world's largest economy to recover the more than 8 million jobs lost during the recession. The turmoil in financial markets brought on by the European debt crisis raises the risk that employment will slow, depriving US households of the income needed to maintain spending.
"The economy is slowing, not just in the United States, but globally," Gross, co-chief investment officer at Pimco, said in a separate interview with Keene. "It's a ‘new normal' type of phenomenon. I don't think the Federal Reserve can raise interest rates in the face of unemployment near 10 per cent."
Federal Reserve appraisal
The central bank said on June 23 at the conclusion of its two-day policy meeting that the recovery pace is "likely to be moderate for a time" and that "financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad". The Fed has held its target rate at a record low zero to 0.25 per cent since December 2008.
"There's no quick fix," Rosenberg, formerly of Merrill Lynch, said. "This is a situation where we have the after-effects of all the stimulus and we are still seeing what the consumer looks like in a stripped-down version when all the support from Uncle Sam is behind us. It's tough to pinpoint what will support the consumer over the next few quarters."
Average hourly earnings fell 2 cents to $22.53 in June, the report showed. The average work week for all workers declined to 34.1 hours in June from 34.2 hours the prior month.
Most investors are ignoring signs that "global financial market returns stand at the threshold of mediocrity", Gross wrote in his July investment outlook posted on June 30 on the Newport Beach, California-based company's website.
Nouriel Roubini, the New York University professor who predicted the financial crisis, has also forecast a continued downturn in growth. Gross also cited Carmen Reinhart, an economics professor at the University of Maryland in College Park who co-wrote This time is different: Eight centuries of financial folly with Harvard University's Kenneth Rogoff.
