Weak US employment figures give Fed room for fresh policy stimulus

US private employers unexpectedly shed jobs in September, reinforcing the conviction that the US Federal Reserve as early as next month will embark on another round of monetary policy stimulus to support the economic recovery.

ADP’s national employment report yesterday said US private employer payrolls fell by 39,000 jobs in September. The median forecast from a Reuters poll was for an increase of 24,000 jobs.

The Fed’s decision on further quantitative easing, due at their early November policy meeting, will likely hinge on inflation and labor market developments and the monthly US Labor Department report on employment tomorrow.

The non-farm payrolls report will likely show zero growth in September from August as a further unwinding of temporary US Census jobs and layoffs at state and local governments offset a slight pickup in private hiring, according to a Reuters survey.

A strong payrolls reading is possible, said Zach Pandl, US economist at Nomura Securities in New York. “But in general if we get anything looking like this on Friday, ‘QE2’ is a done deal at the November 3 (Fed) meeting."

Another report yesterday showed the number of planned layoffs at US firms rose slightly in September, though it was the second lowest level of the year, according to the report from consultants Challenger, Gray & Christmas.

The Fed last month said it was ready to inject more money into the economy if needed to shore up a sluggish recovery.