Arab Today, arab today fed rate hike in question
Last Updated : GMT 21:09:51
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US hiring stalls in May

Fed rate hike in question

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Arab Today, arab today Fed rate hike in question

The US economy generated a paltry 38,000 net new jobs
Washington - Arab Today

US companies unexpectedly slashed hiring last month after a strong four-year run, raising questions about the economy's strength and squelching expectations the Federal Reserve will raise interest rates this month.

In a shock employment report, the Labor Department said Friday that the US economy generated a paltry 38,000 net new positions in May, a quarter of that expected, and the lowest number in nearly six years.

Coupled with downward revisions to the two previous months' totals, removing 59,000 jobs originally tabled, the report crumbled the widespread picture that the US economy was picking up solidly from a first-quarter slump.

The report appeared to have a bright side -- that the unemployment rate nevertheless fell to 4.7 percent from 5.0 percent last month, the lowest level since November 2007.

However that figure was based on data from a volatile household survey that showed a large fall in the size of the civilian labor force, seen as bad news for an economy assumed to be growing at about a 2.5 percent annual rate.

- Fed hike off table -

The report came less than two weeks ahead of the Federal Reserve's next policy meeting, and quickly eliminated expectations that the Fed could increase interest rates at that meeting.

Buoyed by confidence in an ostensibly tightening jobs market, Federal Reserve officials including Chair Janet Yellen had made clear in recent weeks that a rate increase was likely either this month or next.
But analysts said that, added to the concerns about the June 23 referendum over Britain quitting the European Union, which could deeply rile markets, the jobs report virtually eliminated any chance of a rate hike by the Fed at its June 14-15 meeting.

"There is clear evidence that the pace of employment gains has slowed in the past few months," said IHS Global Insight in a client note.

"The 'disconnect' between weak real GDP growth and strong employment growth seems to be resolving itself as employers are defending profits... in a soggy growth environment by managing payroll costs."

Speaking hours after the jobs report was released, Lael Brainard, a Fed governor, said the economy still faces significant downside risks and suggested that waiting before tightening policy was probably best.

"We cannot take the resilience of our recovery for granted," she said.

The labor report sent the dollar tumbling 2.0 percent to $1.1363 per euro and by 2.1 percent to 106.63 yen. US Treasury bond yields fell in parallel, the 10-year note dropping sharply from 1.80 percent to 1.70 percent.

"This report kills the (small) remaining chance of a June hike and drastically reduces the odds of July," said Ian Shepherdson of Pantheon Economics in a client note.

Shepherdson said the surprisingly low job-creation number -- analysts had predicted 155,000 new jobs in May -- reflected a confluence of events, including a long strike by workers at communications giant Verizon and a delayed turn to caution by business owners after the stock market slump in the first quarter.

With the Verizon strike over, some 35,000 workers that had been counted as lost jobs will likely be in the plus column in the June unemployment report, he noted.

"The good news is that it should not last. The pace of layoffs hasn't changed," he noted, and business surveys show companies continue to report plans to keep hiring through this year.

One detail of the report that provided succor was that wages continued to rise, and were up 2.5 percent year-on-year. Higher wages point to a tightening of the jobs market, and with wage growth outpacing inflation, households are adding spending power.

While acknowledging the weakness of the new report, Jason Furman, the chairman of the White House Council of Economic Advisers, pointed out that so far this year jobs growth has averaged 150,000 jobs a month, "well above the pace necessary to maintain a low and stable unemployment rate."

Source: AFP

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