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Flat U.S. Job Report Knocks FTSE Down

News that the U.S. economy failed to create new jobs in August disappointed markets and U.K. blue chips suffered

Morningstar.co.uk Editors 2 September, 2011 | 6:26PM
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The U.S. employment report for the month of August was undoubtedly the key announcement that investors on both sides of the Atlantic were anticipating today, and as the number disappointed, markets slumped.

The FTSE 100 lost 2.3% or 125 points to 5,294. Following this trough, the index’s weekly performance came to a 5.0% gain, with Friday looking like an unpleasant reminder that risk appetite is still a hostage of economic data. The FTSE 250 index fell 1.9% or 196 points to 10,381 today and gained 6.4% on the week.

In August, the U.S. economy failed to add jobs for the first time in almost a year and the unemployment rate remained at 9.1%. The stalemate in nonfarm payrolls was a result of job losses in the government sector and only 17,000 jobs created by the private sector. The strike in Verizon Communications (VZ) contributed with a one-off 45,000 jobs lost, meaning that disregarding this anomaly, the U.S. private sector actually added over 60,000 jobs last month. Meanwhile, data for June and July was revised downwards.

Seasonal and one-off factors aside, the U.S. job market is likely to continue recovering at a sluggish pace, commented Morningstar’s Bob Johnson and Vishnu Lekraj in this video. On the upside, U.S. businesses have streamlined their operations and are unlikely to respond to economic challenges by laying off employees, said Lekraj. However, pointed out Johnson, it is hard to see what the next big boost to the U.S. economy will be unless the government finds a way to rejuvenate the housing market.

On the London Stock Exchange, today’s news knocked all but nine blue chips below breakeven. The search for a safe haven in gold lifted Randgold Resources (RRS) 4.3%, while the second risers on the FTSE 100, silver miner Fresnillo (FRES), only managed to gain 0.5%.

Heavyweight banks and resource stocks dragged the FTSE 100 lower, reversing some of their gains from earlier in the week.

Having been among the top performers on Thursday, Barclays (BARC), Lloyds Banking Group (LLOY), Royal Bank of Scotland (RBS) fell 5.4%-8.4%. The outlook for financials was further dampened by a fresh batch of downbeat news from peripheral Europe. Yesterday, it became clear that Greece is to miss its 2011 deficit cut target. On Friday the EU, IMF and ECB inspectors left Athens without confirming that the country will continue receiving its aid package. Talks are to be resumed in ten days.

Elsewhere within fallers, AstraZeneca (AZN) fell 3.7% after the drug maker's anti-cholesterol medicine Crestor failed to beat Pfizer Inc.'s (PFE) Lipitor in a head-to-head clinical trial, hurting chances the British company's top drug can boost its sales when the world's best-selling medicine goes generic.

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Morningstar.co.uk Editors  analyse and report on shares, funds, market developments and good investing practice for individual investors and their advisers in the UK.