Fears of US slowdown recede
Fears of US slowdown recede
Copyright The Financial Times Limited 2007
Published: January 5 2007 15:36 | Last updated: January 5 2007 16:08
US employers added workers to their payrolls at a record rate last month, according to fresh data which sent shockwaves through financial markets.
The record job creation makes the Federal Reserve less likely to consider cutting interest rates, as the monthly government survey of non-farm payrolls showed that 167,000 jobs were created in December - defying economists’ predictions that the pace of hiring would slow.
The biggest monthly payrolls increase of the last year will be viewed by the Fed as a sign the US economy is heading for a soft landing. The data adds weight to the central bank’s forecast of moderate economic growth this year, despite an ongoing slowdown in the housing sector.
A senior official in the Bush administration said the strong job creation last month showed the Fed had “gotten it right”.
Al Hubbard, an adviser to President George W. Bush, said: “It looks like we’re going to have that soft landing we’ve all been hoping for.”
The data sent Treasury bonds diving and the dollar surging as investors sharply scaled back expectations of US interest rate cuts.
Job creation was also stronger than previously thought in November, with an increase of 154,000 compared to earlier estimates of a rise of 132,000.
The biggest employment gains were in the service sector, with mass hiring in professional and business services, health care, and food services offsetting weakness in construction and manufacturing.
“The report shows that weakness in the housing market has not translated into other areas of the economy,” said Drew Matus, economist at Lehman Brothers. “We still have a drag on the economy from housing and some parts of the manufacturing sector but we are making up for it in other areas.”
“This is another sign of the vibrancy of the US economy and its ability to respond to new challenges.”
Rob Carnell at ING Financial Markets, said: “Barring any dramatic turnarounds next month, the Fed will probably opt to play it safe with unchanged rates at forthcoming meetings.”
The data undermined the more pessimistic expectations priced into bond markets that the Fed would be forced to cut interest rates in the coming months as weakness in the housing and manufacturing sectors dragged economic growth well below trend.
The data produced a rapid sell off in US Treasuries, pushing yields on the benchmark 10-year bond up by 8.4 basis points to 4.69 per cent in the first hour after the report.
The two-year note yield added 10.4 bp to 4.81 per cent.
The payrolls report also prompted investors to adjust their bets in the interest-rate futures markets. Short-term interest rate futures fell, bringing the implied odds of a 25 basis point cut by the end of the first half of this year to 25 per cent, down from 50 per cent before the data.
The euro fell from around $1.3080 before the data, to $1.3002. Sterling fell from around $1.9400 to $1.9310.
Alan Ruskin, strategist at RBS Greenwich Capital said the data “will force the market to further defer rate cut expectations well into” the second half of the year.
The government data will add to Fed concerns about underlying inflation pressures as the survey showed average hourly earnings rose by 8 cents, the strongest rise in eight months.
Government data also showed the unemployment rate was unchanged at 4.5
per cent, signalling a tight labour market, with 6.8m Americans unable to find work.
The Fed has cited the tight labour market as a key reason it retains a bias towards raising interest rates to counter rising prices.
By Tony Tassell and Peter Garnham in London, Eoin Callan in Washington and Saskia Scholtes in New York.
Copyright The Financial Times Limited 2007
Published: January 5 2007 15:36 | Last updated: January 5 2007 16:08
US employers added workers to their payrolls at a record rate last month, according to fresh data which sent shockwaves through financial markets.
The record job creation makes the Federal Reserve less likely to consider cutting interest rates, as the monthly government survey of non-farm payrolls showed that 167,000 jobs were created in December - defying economists’ predictions that the pace of hiring would slow.
The biggest monthly payrolls increase of the last year will be viewed by the Fed as a sign the US economy is heading for a soft landing. The data adds weight to the central bank’s forecast of moderate economic growth this year, despite an ongoing slowdown in the housing sector.
A senior official in the Bush administration said the strong job creation last month showed the Fed had “gotten it right”.
Al Hubbard, an adviser to President George W. Bush, said: “It looks like we’re going to have that soft landing we’ve all been hoping for.”
The data sent Treasury bonds diving and the dollar surging as investors sharply scaled back expectations of US interest rate cuts.
Job creation was also stronger than previously thought in November, with an increase of 154,000 compared to earlier estimates of a rise of 132,000.
The biggest employment gains were in the service sector, with mass hiring in professional and business services, health care, and food services offsetting weakness in construction and manufacturing.
“The report shows that weakness in the housing market has not translated into other areas of the economy,” said Drew Matus, economist at Lehman Brothers. “We still have a drag on the economy from housing and some parts of the manufacturing sector but we are making up for it in other areas.”
“This is another sign of the vibrancy of the US economy and its ability to respond to new challenges.”
Rob Carnell at ING Financial Markets, said: “Barring any dramatic turnarounds next month, the Fed will probably opt to play it safe with unchanged rates at forthcoming meetings.”
The data undermined the more pessimistic expectations priced into bond markets that the Fed would be forced to cut interest rates in the coming months as weakness in the housing and manufacturing sectors dragged economic growth well below trend.
The data produced a rapid sell off in US Treasuries, pushing yields on the benchmark 10-year bond up by 8.4 basis points to 4.69 per cent in the first hour after the report.
The two-year note yield added 10.4 bp to 4.81 per cent.
The payrolls report also prompted investors to adjust their bets in the interest-rate futures markets. Short-term interest rate futures fell, bringing the implied odds of a 25 basis point cut by the end of the first half of this year to 25 per cent, down from 50 per cent before the data.
The euro fell from around $1.3080 before the data, to $1.3002. Sterling fell from around $1.9400 to $1.9310.
Alan Ruskin, strategist at RBS Greenwich Capital said the data “will force the market to further defer rate cut expectations well into” the second half of the year.
The government data will add to Fed concerns about underlying inflation pressures as the survey showed average hourly earnings rose by 8 cents, the strongest rise in eight months.
Government data also showed the unemployment rate was unchanged at 4.5
per cent, signalling a tight labour market, with 6.8m Americans unable to find work.
The Fed has cited the tight labour market as a key reason it retains a bias towards raising interest rates to counter rising prices.
By Tony Tassell and Peter Garnham in London, Eoin Callan in Washington and Saskia Scholtes in New York.
posted by Carlos T Mock @ 9:20 AM
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