July 8 (Bloomberg) -- Employers are reluctant to hire because of political clashes over the U.S. budget, Europe’s sovereign-debt crisis and volatile energy costs, according to Pacific Investment Management Co.’s Anthony Crescenzi.
“Uncertainty is a risk that can’t be measured,” said Crescenzi, executive vice president and strategist at Pimco in Newport Beach, California, during a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “When people face uncertainty, they disengage. They decide that conditions aren’t sure enough that they can have workers added.”
U.S. employers added 18,000 jobs in June, the fewest in nine months, the Labor Department reported today. The unemployment rate unexpectedly climbed to 9.2 percent, the highest level this year.
Individuals and businesses are concerned that the high level of government debt in the U.S. will amount to a tax increase or a cut in services, said Crescenzi, whose firm operates the world’s biggest bond fund.
“People worry about a cut in Medicare or Social Security payments,” he said. “What it causes them to do is self-insure, which is to say, ‘Hey, I don’t want to spend, I have to worry what’s going to happen to me in a few years or a few months.’”
President Barack Obama is summoning top congressional Republicans and Democrats to a rare Sunday meeting at the White House to begin “hard bargaining” on a broad debt-reduction deal. At the July 10 session, Obama will make his latest bid to break a partisan impasse over whether to include cuts in entitlement programs and tax increases in an agreement.
Crescenzi on Priorities
The U.S. will struggle to cut spending, so it has to change what it spends on, according to Crescenzi. The government needs to focus less on things such as health care and invest more in education, infrastructure and research and development, Crescenzi said.
“These are the areas that power economic growth over the long term,” Crescenzi said. “Do what China is doing: invest in itself.”
Moody’s Investors Service cut Portugal’s credit rating this week to Ba2, below investment grade, making it the second euro region nation, after Greece, to have a junk rating. Greece’s parliament passed last week austerity measures necessary for a final round of international aid as citizens rioted.
Crude oil declined in New York today after the government’s payrolls report. Oil for August delivery fell 2.8 percent to $95.90 a barrel after touching $99.42 yesterday, the highest level since June 15.
--Editors: Dennis Fitzgerald, Greg Storey
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