–Need More Aggressive Support From ECB For European Financial System
–Should Not Read Too Much Into May US Jobs Report; Trend Positive

By Brai Odion-Esene

WASHINGTON (MNI) – The White House did not express as much
disappointment with May’s weaker-than-expected U.S. employment report as
did many economists and commentators, and at least one analyst said the
main concern remains the compounding sovereign debt problems in Europe.

The administration honed in on the fact that the unemployment rate
fell — to 9.7% from 9.9% — and the private sector added jobs; even if
it was only a mere 41,000 compared to 218,000 in April.

“The fact that the unemployment rate fell and private employment
rose are obviously encouraging signs that recovery continues,” said
Chirstina Romer, head of the President’s Council of Economic Advisers.

“At the same time, the continued high level of unemployment and the
slowdown in private sector job growth emphasize the need for continuing
vigilance.”

George Mokrzan, vice president and senior economist with Huntington
Bank, said the focus for the market will remain on the manner in which
the EU authorities deal with the sovereign debt issues and how they
prevent it from spreading.

“I think that time is running out,” Mokrzan told Market News
International. “It may have to be done in the next few weeks to keep the
fear about credit issues from spreading any further.”

“The U.S. economy has been one of the few positives, I think, in
the past month,” he said, instead the market’s attention is gripped by
ongoing debt struggles of European nations.

May’s job numbers released Friday have not changed his opinion
“much,” Mokrzan said. “Overall labor markets are improving, the trend is
solid.”

While the private sector only added 41,000 jobs in May, he noted
the positives seen in other sectors — such as the continued strong
gains in manufacturing.

Romer stressed the important of not reading too much into any one
monthly report, positive or negative.

“The monthly employment and unemployment numbers are volatile and
subject to substantial revision,” she said. “Emphasis should be placed
on persistent trends rather than month-to-month fluctuations.”

Mokrzan said most of the concern has now switched to outside the
borders of the U.S.

“There has been reduced confidence in how the Europeans are
handling the crisis. That’s weighing heavily on markets,” he said.

The market was hit with fresh worry Friday that Hungary could join
fiscally stressed euro-zone countries in a struggle with sovereign debt.

The E720 billion emergency funding facility launched by the EU in
early May was a good start, Mokrzan said, but this was then followed by
“a lot of internal bickering.”

What EU authorities need to do is follow up their initial action
and sustain it, responding with leadership and force.

“They need to nip it in the bud before it gets to a situation where
it actually does become a crisis,” he said. “Probably more needs to be
done in terms of delving into the longer-term structural problems of
(public) spending in a lot of these European countries.”

This has to be done at the EU level, he added. The European Central
Bank also needs to get more aggressive about its support for the
European financial system.

He noted that the European banking system is being closely watched
by the market to see how it copes with any downgrades of sovereign debt
or increases in other debt stresses.

Time is of the essence, Mokrzan warned, describing this as perhaps
a pivotal point for Europe. Its leaders must not only introduce a policy
that has “teeth” but one that wins over the confidence of the market.

The debt crisis is still a European problem, he continued, and to
be a powerhouse economy the EU must work as one body and not let
individual countries be “fiscally irresponsible.”

There is some hope that Europe’s travails will not make its way
across the Atlantic, Mokrzan said, especially given the “much better”
fundamentals of the U.S. economy.

When compared to the lead-up to the financial crisis in 2008, “the
underlying fundamentals in the U.S. economy are much stronger now,” he
said, and the country also continues to benefit from the massive policy
stimulus — particularly monetary — that continues to flow into the
system.

“We’ve gotten our train engine up to speed,” Mokrzan said, and the
country is gaining momentum coming out of the down cycle. This better
positions the it to deal with any disturbances sparked by the credit
woes in Europe.

That is not to say U.S. markets are not sensitive to credit shocks
from Europe, he added, making it all the more important that the EU
addresses the crisis in a “very firm and strong way.”

As for the U.S. employment situation, Mokrzan said examining U.S.
jobs data by quarter provides a better picture than a report that looks
at one month. “A quarter rounds out a lot of the month-to-month
volatility.”

Net employment has grown in the first quarter, he said, and will
still accelerate “netting out” the census jobs in the second quarter, he
said.

As for why the private sector added 218,000 to the payroll in April
before falling off sharply to just 41,000 in May, Mokrzan said while
there might still be uncertainty among employers regarding what their
employment needs will be, “I think its the overall trend that is
important to monitor.”

“And I still think that trend is in place.”

** Market News International Washington Bureau: 202-371-2121 **

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