US labour market bounces back

Posted on July 8, 2016

FILE - In this Wednesday, May 18, 2016, file photo, a woman passes a "We're Hiring!" sign while entering a clothing store in the Downtown Crossing of Boston. On Friday, June 3, 2016, the U.S. government issues the May jobs report. (AP Photo/Charles Krupa, File)©AP

The US jobs market leapt back to life last month following a torrid May as hiring accelerated at the quickest pace since October 2015.

Payrolls in the US grew by 287,000 last month, more than 100,000 more than had been forecast by analysts, the Bureau of Labor Statistics said. That followed a downwardly revised gain of 11,000 in May that now looks like an aberration rather than the start of a weakening trend.

    The jobless rate rose to 4.9 per cent from 4.7 per cent but the increase was seen by analysts as partly positive news as more people entered the labour market looking for work.

    The dire May figures had triggered concerns within the Federal Reserve that the US labour market recovery was losing steam, helping convince the central bank to leave policy unchanged as it gauged the underlying strength of the rebound.

    The new numbers sharply change the picture, pushing aside fears that the US is flirting with recession and providing encouragement to Fed officials who argue that the US is closing in on full employment and that monetary policy needs to respond in the coming months.

    US stocks erased all of their post-Brexit referendum losses after the data release. The S&P 500 rose 0.9 per cent to 2,116.31, taking the index past its pre-Brexit level of 2,113.32. Both the Dow Jones Industrial Average and the Nasdaq Composite also traded above their pre-Brexit levels after climbing 0.9 per cent and 1 per cent respectively.

    In the Treasury market, after an initial spike, yields on the 10-year note flatlined again, rising under 1 basis point to 1.392 per cent by mid-morning.

    The federal funds futures pointed to a 23.7 per cent chance that the central bank will raise interest rates before the end of the year, compared with 11.8 per cent on Thursday.

    However, the data predate the UK’s vote to leave the EU, a decision that has sent tremors through global markets and prompted senior Fed officials to call for a wait-and-see stance as they gauge the wider impact.

    “Brexit still matters,” said Diane Swonk of DS Economics. “The Fed is an international world, and the world is not an easy place and risks abound. The US looks good and we are gaining traction, but that doesn’t make it easy for them to raise rates.”

    The solid June jobs report was also boosted by the end of a strike at Verizon Communications, a stoppage that took 35,100 workers away from payrolls in May and added them back in June. Looking at the past three months, job growth has averaged 147,000 per month, which is enough to keep the jobless rate trending lower over time.

    The number of people working part-time because they couldn’t find a full-time job — an indicator closely followed by Fed policymakers seeking signs of slack in the labour market — dropped sharply by 587,000 to 5.8m.

    In a further encouraging sign, wages showed signs of firming, as average hourly earnings rose 2.6 per cent in June from a year earlier, up from 2.5 per cent the prior month. That is still relatively tepid wage growth but it is quicker than the average of 2.3 per cent in 2015 and 2.1 per cent in 2014.

    Hiring was across a wide range of sectors, from leisure, healthcare, financial services, retail and business services. Construction was flat, however, while the oil bust continued to drag down employment in mining.

    “The rebound shows that employers in the US are continuing to hire at a solid clip, and that last month’s revised number of 11,000 was an anomaly,” said Tara Sinclair, chief economist at Indeed, the job site. However, “the uncertainty of Brexit for the global economy still looms, and may mean employers pull back on hiring in July and beyond,” she said.

    The continued strengthening of the labour market will give a boost to Hillary Clinton, the Democratic nominee, who is seeking to highlight positive economic legacies of the Barack Obama years as she campaigns for election in November.

    Mrs Clinton has echoed Mr Obama in arguing that the US is in a stronger position than overseas economies. Donald Trump, her presumptive Republican rival, by contrast last month called the weak May hiring report a “bombshell” and a “terrible” number.

    “For the Fed, this report is likely to offer some encouragement on the underlying labour market backdrop, though it is unlikely to change the current ‘wait and see’ policy stance as they await further confirmation that the labour market is sustainably back on track,” said Millan Mulraine, economist at TD Securities.

    You must be logged in to post a comment Login