US jobs data ease rate rise fears
US jobs data ease rate rise fears
By Jennifer Hughes in New York
Copyright The Financial Times Limited 2006
Published: August 4 2006 13:50 | Last updated: August 4 2006 21:51
Hopes that the US Federal Reserve will next week pause its long-running series of interest rate rises were boosted on Friday by figures showing weaker-than-expected employment growth and a rise in the jobless rate.
The news triggered an early rally on the markets, although stock indices eventually gave back gains to close slightly lower.
The Labor Department said 113,000 jobs were created last month, less than the 145,000 expected by economists.
The Federal Open Market Committee convenes on Tuesday. If it leaves rates unchanged, it would be the first time in over two years that it has not raised rates.
After Friday’s data, futures markets indicated investors had priced in a 20 per cent probability of a rate rise, having previously factored in a 40 per cent chance.
“There is enough doubt about growth to force the Fed to take a wait-and-see stance next week,” said Avery Shenfeld, analyst at CIBC World Markets. “Four tepid payrolls gains in a row will be too much for the Fed to ignore.”
Averaged over the past four months, payrolls have risen by 112,000 a month – well below the 150,000 economists use as a rule of thumb for the pace needed to absorb new entrants to the workforce. Unemployment, which is calculated from a different survey, unexpectedly rose from 4.6 per cent to 4.8 per cent last month – its highest level this year.
“This may be a one-month blip but if I was on the FOMC I would be willing to sit on my hands just to make sure,” said Stephen Stanley, chief economist at RBS Greenwich Capital, who still expected one more rate rise, perhaps as soon as September.
Underneath the weak headline numbers, the report showed some signs of ongoing strength. Private employment improved and manufacturing hours worked rose even as overtime fell, suggesting healthy production rates.
There were some concerns about inflation pressures, which could force the Fed to raise rates in the future even if growth is slowing. Average hourly earnings rose 0.4 per cent, more than the 0.3 per cent expected, for an annual rate of 3.8 per cent.
The S&P500 ended virtually flat at 1,279.36 after an early 1 per cent rally while yields on benchmark 10-year Treasuries dropped 6 basis points to 4.9 per cent, a four-month low. The dollar fell to $1.288 against the euro from $1.28.
By Jennifer Hughes in New York
Copyright The Financial Times Limited 2006
Published: August 4 2006 13:50 | Last updated: August 4 2006 21:51
Hopes that the US Federal Reserve will next week pause its long-running series of interest rate rises were boosted on Friday by figures showing weaker-than-expected employment growth and a rise in the jobless rate.
The news triggered an early rally on the markets, although stock indices eventually gave back gains to close slightly lower.
The Labor Department said 113,000 jobs were created last month, less than the 145,000 expected by economists.
The Federal Open Market Committee convenes on Tuesday. If it leaves rates unchanged, it would be the first time in over two years that it has not raised rates.
After Friday’s data, futures markets indicated investors had priced in a 20 per cent probability of a rate rise, having previously factored in a 40 per cent chance.
“There is enough doubt about growth to force the Fed to take a wait-and-see stance next week,” said Avery Shenfeld, analyst at CIBC World Markets. “Four tepid payrolls gains in a row will be too much for the Fed to ignore.”
Averaged over the past four months, payrolls have risen by 112,000 a month – well below the 150,000 economists use as a rule of thumb for the pace needed to absorb new entrants to the workforce. Unemployment, which is calculated from a different survey, unexpectedly rose from 4.6 per cent to 4.8 per cent last month – its highest level this year.
“This may be a one-month blip but if I was on the FOMC I would be willing to sit on my hands just to make sure,” said Stephen Stanley, chief economist at RBS Greenwich Capital, who still expected one more rate rise, perhaps as soon as September.
Underneath the weak headline numbers, the report showed some signs of ongoing strength. Private employment improved and manufacturing hours worked rose even as overtime fell, suggesting healthy production rates.
There were some concerns about inflation pressures, which could force the Fed to raise rates in the future even if growth is slowing. Average hourly earnings rose 0.4 per cent, more than the 0.3 per cent expected, for an annual rate of 3.8 per cent.
The S&P500 ended virtually flat at 1,279.36 after an early 1 per cent rally while yields on benchmark 10-year Treasuries dropped 6 basis points to 4.9 per cent, a four-month low. The dollar fell to $1.288 against the euro from $1.28.
posted by Carlos T Mock at 10:57 AM
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