Wilson Bennett: The US economy created 280,000 jobs in May comfortably beating consensus forecasts of 225,000.
According to Wilson Bennett, the US economy created a better-than-expected 280,000 new jobs in May raising hopes that economic growth is rebounding after a lackluster start to 2015. The headline employment rate increased to 5.5% because the labor force participation rate gained slightly to 62.9%.
Though commentators seized upon the number as providing confirmation that the economy was back on track, Nadine Schuler, Head of Global Markets Research at Wilson Bennett disagreed.
“There’s a strong perception in the market that the economy must be doing well because, with the exception of the odd blip, the non-farm payrolls number seems to beat expectations each month but we think it’s foolish to dismiss all the poor economic data we seem to be getting almost on a daily basis,” she explained.
Delving into the numbers, a higher than expected increase in wage growth to an annualized 2.3% was taken as indicating that inflation could be heading closer to the Fed’s 2% target and it promptly sparked renewed speculation on the timetable for the Federal Reserve to raise interest rates.
“The Fed has stated that the unemployment rate is an important determinant for the timing of a rate hike but there’s far more to it than that. The strength of the US dollar is also a crucial determinant because it’s hurting US companies who do a lot of their business abroad and it definitely hurts exports,” said Schuler. “The fastest way to bring the dollar down is to signal to markets that a rate hike is further off than everyone believes.”
Wilson Bennett says it expects broad economic data to continue to reflect weakness in the US economic recovery and maintains its view that rates are unlikely to go up this year.
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