Sun, Jun 05, 2016 - Page 13 News List

Jobs report kills hopes of US rate hike

BAD DREAM:Dismal US workforce numbers point to a three-month deceleration trend an economist said, as April’s 160,000 additional jobs figure was revised down to 123,000

Bloomberg

The argument for an interest-rate hike this month from the US Federal Reserve has evaporated.

Economists and investors largely agreed that Friday’s disappointing employment report for last month — the US economy added just 38,000 new jobs — all but eliminated the chance that US Fed officials would tighten policy when they meet on June 14 to June 15 in Washington, and might make it difficult for them to raise next month.

“Today’s labor market report is sobering and suggests that the labor market has slowed,” US Fed Governor Lael Brainard told an audience in Washington.

“Prudent risk-management implies we should wait for additional data to provide confidence that domestic activity has rebounded,” said Brainard, who has previously argued for patience on raising rates.

Recent comments from other officials prior to the report, including US Federal Reserve Chair Janet Yellen on May 27, had signaled they were in favor of a rate increase in coming months. Yellen is to deliver remarks again on Monday, making her the last scheduled US Fed official to speak publicly before the quiet period they typically observe the week before a US Federal Open Market Committee meeting.

“I thought she would be kind of sealing the case for June,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York. “Maybe it’s time for her speechwriters to plan a long weekend.”

JPMorgan Chase & Co chief US economist Michael Feroli said the report “raises some questions about the momentum of growth and about the outlook.”

“This takes June off the table,” he said. “To get to July, we’re going to need a pretty nice rebound in the data.”

Brainard was not the only US central banker sending dovish signals on Friday.

Chicago Fed President Charles Evans, speaking in London before the employment report was released, said officials should consider delaying a rate increase until core inflation was back up to their 2 percent target — something he expects to take three years.

The US Department of Labor report released on Friday showed employers added jobs last month at the slowest pace since 2010, even as unemployment declined to 4.7 percent. However, the drop was caused not by job creation, but by people leaving the workforce.

The labor force participation rate — those working, plus those looking for work, as a percentage of working-age Americans — fell to 62.6 percent from 62.8 percent in April. The share of Americans working part-time because they could not find full-time work — a gauge Yellen has indicated she is watching for signs of remaining slack in the labor market — jumped to the highest since August last year.

The number of jobs added in April was revised down to 123,000 from 160,000.

Carl Tannenbaum, chief economist at Northern Trust Corp in Chicago, said that the dismal numbers could not be dismissed as a one-month aberration.

“The revisions were so significant it does begin to paint a trend of deceleration over three months,” he said. “I find it hard to fathom we’re going to speak a month from now and find all this has been a bad dream.”

The employment report comes as a surprise as US economic data has been mostly positive in recent months. Initial jobless claims have declined for three consecutive weeks. The Atlanta Fed’s GDPNow estimates that second quarter growth is on track to hit 2.5 percent on an annualized basis.

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