Friday, June 9, 2023

US economy adds 253,000 jobs in sign of labour market strength

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US jobs growth was stronger than expected in April, showing the resilience of the economy even as the Federal Reserve signalled it was “getting close” to pausing its cycle of interest rate rises.

The US added 253,000 non-farm jobs last month, according to a report from the Bureau of Labor Statistics on Friday, confounding expectations of a slowdown.

The headline payrolls increase was partially offset by downward revisions to the previous two months’ data, but the unemployment rate and wage growth figures also pointed to continuing tightness in the labour market, raising doubts over whether the Fed will begin to cut interest rates as soon as investors had expected.

The two-year Treasury yield, which moves with interest rate expectations, jumped to session highs immediately following publication of the data. It was up 0.15 percentage points for the day, at 3.88 per cent. Traders in the futures market also reduced bets on interest rate cuts starting this summer, though the possibility is still priced in.

“This report paints a picture of a labour market that is hot, and that would not justify cutting rates,” said Eric Winograd, senior economist for fixed income at AllianceBernstein.

The unemployment rate dipped to 3.4 per cent last month, compared with consensus forecasts of 3.6 per cent. Hourly wage growth strengthened by 0.5 per cent month on month, and was up 4.4 per cent year on year.

Jobs growth was particularly strong in professional and business services, while hiring in the healthcare and leisure and hospitality sectors also expanded strongly.

Wages are an important factor in inflation, particularly in the service sector, so economists and investors were closely monitoring the numbers for signs that higher interest rates are slowing the economy and bringing down inflation.

The data comes after the US central bank on Wednesday announced its tenth consecutive interest rate rise, lifting its benchmark federal funds rate to a range of 5 to 5.25 per cent. Fed chair Jay Powell said the labour market remained “extraordinarily tight”, but added that “there are some signs that supply and demand . . . are coming back into better balance”.

Data released earlier this week supported Powell’s assessment, showing a sharper than expected drop in job openings to their lowest level since April 2021. However, Friday’s figures are the latest reminder that inflationary pressures are still high.

Powell stressed on Wednesday that it would still take some time to bring inflation down towards the Fed’s 2 per cent target, but investors have been betting that the central bank will quickly pivot to cutting rates, with the first coming as soon as July.

Jack Janasiewicz, a portfolio manager at Natixis Investment Managers, said stronger than expected jobs or wage growth data this week “would reinvigorate the idea that the Fed is not done”.

He also highlighted the importance of data on the labour force participation rate, which counts the number of Americans who are employed or actively searching for a job. The rate has crept up in recent months after dropping dramatically early in the coronavirus pandemic, but was unchanged at 62.6 per cent in April.

“There are reasons to believe people are coming back off the sidelines and increasing the supply of labour, which is what the Fed is looking for,” said Janasiewicz. “One of the better paths to a soft landing is increasing the supply of labour rather than seeing people get laid off.”

Asked on Wednesday about the tension between the Fed’s dual mandates of bringing down inflation while maximising employment, Powell said: “Right now, we need to be focusing on bringing inflation down. Fortunately, we’ve been able to do that so far without unemployment going up.”



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