Unemployment rising as employers remain edgy

US unemployment figures rose again in March, reflecting continued disquiet among employers brought on by the war in Iraq and falling levels of consumer activity.

March labour force data shows US unemployment at 5.8%, with 108,000 jobs lost during the month, bringing the percentage of the population in employment to its lowest level since March 1994.

This is the fourth decline in employment figures in five months, following a revised loss of 357,000 jobs in February, more than the original figures reported by the US Labor Department.

Sarah Fong, US fund manager at F&C, blames conflict in the Middle East and the low level of consumer confidence for the increase in unemployment.

Corporates have pulled back from making large commercial commitments, she says, with cuts in orders and production. However, this slowdown is obviously dependent on how long the war continues, she notes.

US investment manager for Britannic Asset Management, Douglas Wright, agrees the war in Iraq is impacting upon unemployment figures in the US but says the economy was weak before the war and the Iraq crisis has merely accentuated the problem.

He adds: 'In some ways, the employment market has been quite resilient. At the start of the year, the unemployment rate was around 5.6% and has only risen by 0.2% since then.'

Wright believes consumer sentiment is critical. He says: 'The housing market, a typically robust sector that has done very well, is beginning to slow, as are automobile sales, which have been strong for the past few years.'

Fong believes the travel sector has been badly impacted by the current economic climate because consumers are staying at home rather than travelling. However, they are spending in other areas such as household goods, so some sectors are seeing more unemployment than others.

'There has been a fallout from the bull market in areas that recruited aggressively at that time, such as financial companies, which have been badly hit,' says Fong.

'The corporate law sector may have been affected due to the decline in the likes of merger and IPO activity.

'Even in a recovery situation, employment figures would probably not return to the levels they were at during the bull market.'

Douglas says bad news regarding the progress of coalition forces in Iraq would be a negative for both the US economy and its unemployment statistics.

He adds that a quick resolution to the war would help boost employment and trade.

'Apart from the impact of the crisis in Iraqi, there are other fundamental issues that need to be addressed,' Douglas says.

'Companies need to see economic improvement to help bring about the desperately required return of confidence to businesses in the US.

'At this point, I would predict around 2.5% GDP growth over 2003.'

Philip Scott

bull points

Unemployment rate of increase slowing.

End of Iraq war would boost sentiment.

GDP growth of 2.5% predicted.

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