Strong US job creation forcing Yellen’s hand

Added 5th August 2016

The United States’ non-farm payroll growth in July comfortably outstripped forecasts, according the Bureau of Labor Statistics.

Strong US job creation forcing Yellen’s hand

Some 255,000 new jobs were created, along way above the consensus estimate of 180,000. The unemployment rate was steady at 4.9%.

The figure will increase expectations that inflation could be in the offing and therefore mean the Federal Reserve has to raise interest rates.

According to Fathom Consulting, another strong jobs report confirms that the weaker job creation seen in May was just an aberration.

The three-month moving average is now within a whisker of 200,000, which is well above the neutral level of around 60,000 Fathom noted.

“Following the disappointing US GDP figure for Q2, this payroll report will calm nerves that the US is suffering any appreciable slowdown,” added Ian Kernohan, economist at Royal London Asset Management. Employment is growing at a robust pace, which would not be the case if the economy was in recession, as many commentators were claiming earlier in the year.” 

“The unemployment rate remained flat at 4.9%, and while wage growth has picked up in recent months, there is little sense that labour costs are pushing up domestic inflationary pressures,” he added. “The Fed can afford to wait until after the November election before hiking interest rates again.”

Richard de Meo, managing director of Foenix Partners said the surge in payrolls has re-awakened belief in the US economy and will see markets all but price in September action by the Fed.

“Having moved beyond the worst of ‘global risks’ and seemingly on the verge of imminent action it was a shock NFP print in June that caused bets to quickly unwind,” he noted. “Two months on and the market’s ‘glamour print’ has seemingly put the US on track for its first interest rate hike since December of last year. Stronger average earnings will more than offset the unemployment rate increasing to 4.9%, with dollar gains reflecting markets more than satisfied with the robustness of this jobs report.”

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About Author

Alex Sebastian

News editor

Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.


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