Us Showing Lead Despite Jobs Gloom

The Age

Monday December 8, 2008

By VANESSA O'SHAUGHNESSY, INVESTMENTREPORTER

US MARKETS have set a positive tone for Australian shares even though US employers cut 533,000 jobs last month, taking the unemployment rate to 6.7% - its highest in about 15 years.

It has been 34 years since that many jobs disappeared in a month. Since the US entered recession last December, 1.9million jobs have been cut.

However, the Dow Jones Industrial Average gained 3.1per cent, because of increases in financials such as JPMorgan Chase and Bank of America.

And the S&P/ASX 500 jumped 3.7 per cent as insurer Hartford Financial Services more than doubled its value.

Last night, the futures market suggested Australian shares might also rise on opening this morning.

Nevertheless, BNP Paribas chief North American economist Brian Fabbri said it appeared the US was heading for the deepest recession of the era.

"The longest recessions (in) 1973 to 1975 and 1981 to 1982 lasted 16 months and I am convinced that this one will last much longer," he said.

"The shocking jump in job losses in the past three months indicates the severity the present recession has fallen into."

Mr Fabbri said, without some kind of economic stimulus package, the US economy would deteriorate even faster.

Speaking at the weekend, US president-elect Barack Obama said he would make the "single largest" investment in infrastructure such as roads and public buildings.

He aims to create 2.5 million jobs by improving school buildings, improving health care and making public buildings more energy efficient. His plans include an initiative to improve access to broadband internet across the US.

Even so, the price of oil fell to a new four-year low, on concerns about the depth of the US recession.

West Texas intermediate crude lost $US2.86 a barrel in New York, to close at $US40.81 a barrel, having sold for more than $US145 a barrel just a few months ago.

In Australia, payments from the Federal Government's $10.4billion economic stimulus package will start hitting accounts today. Pensioners, veterans, carers and people on a disability pension, as well as many parents, will share in the money distributed.

But Deutsche Bank economists Tony Meer and Phil O'Donaghoe said Australia could not hide from a major global recession. "We expect Australia to roll from a recession in household sector spending in 2008-09 into a recession in private business investment in 2010," they forecast.

"The trend deterioration in Australia's labour market, seen over 2008, is expected to continue through 2009, resulting in an outright fall in the level of employment and an increase in the unemployment rate to about 7 per cent by end-2009."

Forecasters from JPMorgan predict unemployment will reach a high of about 9 per cent in 2010.

© 2008 The Age

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