TOPICS > Economy

Positive April Job Growth Tempered by Market Uncertainty in Europe

May 7, 2010 at 12:00 AM EST
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Employers added 290,000 jobs last month, marking the biggest hiring increase in four years. Jeffrey Brown talks to two financial experts about the pace of the economic recovery and gets an update from Susie Gharib of PBS's Nightly Business Report about the brief but deep stock market plunge on Thursday afternoon.
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JEFFREY BROWN: U.S. employers revved up hiring last month, even as more people entered the workforce, causing the overall unemployment number to rise.

In the meantime, Wall Street continued its losses. The Dow Jones Industrial Average lost nearly 140 points to close at 10,380. The Nasdaq fell 54 points to close at 2,265.

That came amid uncertainty over the situation in Greece and questions over what led to yesterday’s sudden 1,000-point plunge.

NewsHour correspondent Kwame Holman begins our coverage.

KWAME HOLMAN: Payrolls expanded by 290,000 in April, the most in four years. Of that, private employers added 231,000 new jobs, with widespread gains across a number of industries, including manufacturing, construction, retail, education, and health services. Another 66,000 temporary government workers were hired to help conduct the Census.

Despite the job growth, the unemployment rate still rose .2 of a point to 9.9 percent, as more than 800,000 jobless Americans resumed their search for work.

At the White House, President Obama called today’s report very encouraging news.

U.S. PRESIDENT BARACK OBAMA: Yes, we’ve got a ways to go, but we’ve also come a very long way. And we can see that the difficult and, at times, unpopular steps that we’ve taken over the past year are making a difference.

KWAME HOLMAN: On Capitol Hill, reaction to the jobs report from members of the Joint Economic Committee was mixed, with Republicans contending Democrats had not done enough to create jobs.

Kevin Brady represents Texas’ Eighth District.

REP. KEVIN BRADY, R-Texas: A painfully slow recovery is better than no recovery. But for the 15.3 million Americans who are out of work and waiting for Washington Democrats to finally focus on jobs, this report is disheartening.

KWAME HOLMAN: The jobs numbers also did not stop the jitters on Wall Street a day after one of the most volatile trading sessions in history. A computerized sell-off midday yesterday sent the Dow Jones Industrial Average plummeting nearly 1,000 points in about 30 minutes.

MAN: It’s like “Terminator,” machines taking over.

KWAME HOLMAN: Some reports indicate the activity might have been caused by a simple typographical error.

Meanwhile, some members of Congress now are pressing government regulators to ensure that high-technology trading is well-monitored.

Mr. Obama said yesterday’s events are being investigated.

BARACK OBAMA: The regulatory authorities are evaluating this closely, with a concern for protecting investors and preventing this from happening again. And they will make findings of their review public, along with recommendations for appropriate action.

KWAME HOLMAN: Even before the sharp drop in the market, stocks had been lower. The main cause was investors’ concerns the $140 billion bailout for Greece by the European Union and International Monetary Fund might not be enough to stop the debt crisis from spreading throughout Europe.

Today, G-7 finance ministers were teleconferencing on the crisis, while the German parliament approved its share of the rescue package.

Chancellor Angela Merkel spoke before travelling to Brussels for a meeting of the EU.

ANGELA MERKEL, German chancellor (through translator): This is a very important decision that makes clear that we are protecting the currency in the interests of our citizens. But it can only be effective in combination with the ambitious Greek austerity plan which was passed in the Greek parliament yesterday.

KWAME HOLMAN: President Obama said he spoke with Merkel this morning about the Greece crisis and made clear the U.S. supports the rescue efforts. But even with the support of the international community for Greece, anxiety over the country’s debt issues rattled markets in Europe and Asia.

JEFFREY BROWN: And we turn next to two economy watchers: Mark Zandi, chief economist at Moody’s Economy.com and Mohamed El-Erian, CEO and co-chief investment officer at PIMCO, a global investment management firm.

Mark Zandi, starting with you, what do the jobs number tell you?

MARK ZANDI, chief economist, MoodysEconomy.com: A great report. A lot of jobs, very broad-based, across lots of different industries.

You know, we have been in recovery for six to nine months, but the missing link was job growth. And I think we found it today. A very positive report indicates that the economy should do much better going forward.

JEFFREY BROWN: And you see it, you said, widespread among key sectors.

Fill that in a little bit.

MARK ZANDI: Yes, it was very broad-based. It was manufacturing, it was construction. And, of course, those are two sectors that have been losing lots of job during the recession.

It was leisure and hospitality, it was retailing, it was parts of financial services. It was, of course, the federal government because of the Census hiring. Almost every sector added a bit during the month, and that is a very good sign.

JEFFREY BROWN: And Mohamed El-Erian, what do you see in the jobs market.

MOHAMED EL-ERIAN, COO and chief investment officer, PIMCO: Same as Mark, a very encouraging report. We’re finally seeing all these cyclical tailwinds translate into job creation.

And the question is, can this continue given what else is going on in the global economy? But on a standalone basis, today’s report was strong not only in terms of the headline number, but, also, there were past revisions that created even more jobs over the last few months.

JEFFREY BROWN: And just to explain, Mr. El-Erian, why the unemployment number went up, more people are coming back to the workforce. In theory, that’s a positive, right?

MOHAMED EL-ERIAN: Correct. As people see their neighbors getting jobs, they are encouraged to start looking for jobs again. So, ironically, you get both job creation, but you also get more people looking for jobs, so the unemployment rate goes up. In this case, it went up to 9.9 percent.

JEFFREY BROWN: So the question, Mark Zandi, is the pace, the rate of growth of jobs. Can it sustain these people coming in and the number of jobs that we need to create to get the economy really moving?

MARK ZANDI: Right. I think we need approximately 150,000 jobs each and every month just to stabilize unemployment. So, to bring unemployment down in a meaningful way, we would need job growth of 200,000, 250,000, 300,000.

Now, we got that in the month of April. We got a similar kind of job growth in March. We now need to see that over the next six, 12, 24 months. We need consistent job growth.

Then, the preconditions for that are in place. Businesses are doing much better. Corporate profits are up. Their balance sheets are in better shape.

So, they are — it’s no longer a question of, are they able to hire?

It’s really a question of, are they willing?

JEFFREY BROWN: Well, Well, Mr. El-Erian, you just raised that big uncertainty about what’s happening around the globe, particularly starting in Greece. Spin that out for us a bit. I mean, how worried are you, and how does that then play into the positive signs for the economy we’ve just been talking about?

MOHAMED EL-ERIAN: It is worrying.

This week, Greece went from being a country problem to being a problem for Europe as a whole. And it started morphing into a global problem.

So, if you are in the United States, there are different implications.

First and foremost, unfortunately, things are going to slow down in Europe as a whole. This is a deflationary shock. It’s going to reduce activity. It’s going to reduce demand. And therefore, it’s going to reduce the ability of Europe to buy exports from the United States.

Secondly, what’s happening in Greece, which is fundamentally a solvency issue, people are worried whether Greece will pay back its debt.

Despite the $140 billion package that was referred to earlier, the market is still worried about solvency. It’s worried about Greece’s ability to pay off its debt over time.

Because of that, there has been an increased risk aversion. People are getting nervous about, what’s next? And in particular, what happens to the banks that are exposed to Greece?

Now, as you know, banks are like the oil in a car. They connect things. If the oil in your car does not work, the car doesn’t go forward. And what we started seeing this week is that the European banks are getting under pressure. So that tended to disrupt sentiment, and that is why we have seen sell-off in markets.

There is one silver lining in all of this, which is capital that would have otherwise gone to Europe may well be diverted into the United States. And that’s why our interest rates have been coming down this week.

JEFFREY BROWN: You mean the United States has a safe haven amidst all the problems elsewhere?

MOHAMED EL-ERIAN: Yes. My former colleague says sometimes you want to wear your cleaner shirt, but there are times where you’re going to have to settle for your cleanest dirty shirt. There are times when you live in a relative world. And relative to Europe today, the United States looks attractive to foreign investors.

JEFFREY BROWN: Well, so, Mark Zandi, how does all of that temper your more positive view, especially with these job numbers for the U.S.

economy?

MARK ZANDI: Yes. Right.

Well, if the Greek debt crisis continues on, if it’s not quelled by policymakers, then it would change my view. I mean, I think the Greek situation, if unchecked, will undermine our stock market. And the stock market has been key to strong economic growth here. It’s the reason why consumers are outspending. It’s why businesses are starting to hire again.

So, it’s very, very important for policymakers, the European Central Bank, the European Union, the IMF, to really engage here and quell the crisis. And they have the tools to do it.

I mean, the ECB can provide more liquidity to the banking system.

Mohamed mentioned troubles the banks are having. They can help with that. They can also lower interest rates if the European economy does, in fact, begin to struggle.

And the IMF, they put forward $140 billion, but clearly that’s not enough. They can increase the size of package and get creative about how they provide the aid. So this is really a policy decision on their part, and I think they need to put an end to this so that it doesn’t become a larger global economic problem.

JEFFREY BROWN: And Mr. El-Erian, we talked about this, actually, last night, with Paul Krugman and Robert Barbara (ph). I wanted to ask you the same question.

To what extent do the problems that you see in Greece, and perhaps spreading elsewhere in Europe, does that raise questions about our own long-term debt problems here? Is that an issue here, or is it really the more immediate, as you were laying out before, the impact on our exports and the connections there?

MOHAMED EL-ERIAN: It’s both. In the short term, it’s a contamination from Europe. But over the longer term, what is happening in Greece tells you three things that have to be taken very seriously in our country.

First, deficits and debt matter. You can’t simply ignore them year after year.

Secondly, it’s important to have flexibility in the budgetary system to respond. One of the problems that Greece has is, even if it’s willing to adjust, it’s finding itself not able to adjust. And that’s because the situation has gotten so bad, that there is limited flexibility.

And the third lesson that Greece tells us all is things can change very quickly. Who would have thought that within a few weeks, not only would there be doubts about whether Greece could make its debt payments, but that there would be doubts about what the eurozone would look like in six months to a year? So things can change very quickly, and it’s important that we don’t waste time to get our act together on the public finances.

JEFFREY BROWN: And Mark Zandi, just very briefly, so do you expect more market volatility based on that uncertainty?

MARK ZANDI: Yes, because to get out of the financial panic and great recession, every country had to engage in massive fiscal stimulus. I think it was absolutely necessary that they did that, because we would still likely be in recession if they hadn’t. But the downside is now every country, including our own, has a very large deficit, a very large debt load. And each country is going to face this problem unless they make the hard choices and clean up their fiscal situation.

JEFFREY BROWN: All right. Mark Zandi and Mohamed El-Erian, thank you both very much.

MARK ZANDI: Thank you.

JEFFREY BROWN: And now, what did happen yesterday to briefly cause the stock market to plunge 1,000 points? And could it happen again?

For that, we’re joined once again by Susie Gharib, anchor of PBS’s “Nightly Business Report.”

Susie, thanks for joining us again.

What more is known today about what happened yesterday?

SUSIE GHARIB: You know, it’s hard to believe, but they’re still trying to figure out what happened. It turns out that decoding what happened yesterday is not so easy. Very complex systems at work here.

So, officials here at the New York Stock Exchange, as well as the Nasdaq and regulators, are investigating. Here’s what we know tonight.

At first, it was thought it was human error. Now it turns out that’s too simple an explanation.

The focus now is on computerized trading. It appears that some dramatic moves in the currency markets yesterday may have triggered computerized program selling in the stock markets. And once that happened, the stock transactions were like a domino effect. Anything that was available to sell was sold.

Also today, a lot of finger-pointing going on between the New York Stock Exchange and the Nasdaq, the blaming, who was really at fault here. The Chicago Mercantile Exchange said everything was properly functioning at our exchange. So, ,the exact origin of what went wrong, still, it’s going to probably take a couple of weeks until we know when these investigations are all wrapped up.

JEFFREY BROWN: But there is still the how in the world — you know, we all remember this happening in the past when there were some really huge drops. And then, my understanding was they put into place what they call circuit breakers so that there would be a kind of cooling-off period before things really got out of hand.

Now, does this suggest the circuit breakers aren’t there or they don’t work? Do you think people are getting around it? What’s going on?

SUSIE GHARIB: No, the circuit breakers exist, but there are certain situations that have to happen for a circuit breaker to kick in. At the New York Stock Exchange, for example, the Dow has to drop something like 10 percent for the circuit breakers to kick in. But after 2:30 p.m., the Dow has to drop something like 20 percent. Well, all of this commotion happened after 2:30, and the Dow did not hit that 20 percent threshold.

The other thing is, there are circuit breakers for individual stocks.

And that did happen yesterday, because Procter & Gamble, for example, dropped 10 percent. And a circuit breaker kicked in. Trading on that stopped.

However, the electronic traders, traders on electronic exchanges, bypassed that and they still went on to do trading. And so the selling was continuing outside of the New York Stock Exchange.

Now, the New York Stock Exchange believes that investors would be best served if everybody had circuit breakers in place, and that they all kicked in together in a universal point of view. But the electronic exchanges say we want to have continuous trading. So this is an ongoing debate. And so, yesterday, the circuit breakers didn’t really have an impact.

JEFFREY BROWN: And briefly, as you said, there’s finger-pointing going on. And the SEC is now involved, looking in to make sure — see what happened and make sure it doesn’t happen again.

SUSIE GHARIB: Right. And, you know, until we know what happened, it’s kind of hard to know who is going to fix this problem.

If it has to do with the exchanges, then the Securities and Exchange Commission will get involved. If it had to do with the futures contracts, on futures exchanges, then the Commodities Futures Trading Commission will get involved. One way or another, all of the exchanges are going to have to have a say-so in how to fix this problem.

And, of course, there are lawmakers in Washington. Already, today, a House subcommittee said they are going to have hearings on Tuesday to figure out what was behind this whole market drop and what should be done to fix it. You know that, already, Congress is talking about financial reform because of the financial crisis and “too big to fail.”

Now it looks like Wall Street regulation is also going to be on the table.

JEFFREY BROWN: All right.

Susie Gharib with Nightly Business Report. Thanks again.