Job growth way above expectations - interest rates to stay firm

Friday, May 06, 2005

Nonfarm payroll employment rose by 274,000 in April, about 100,000 more than expected, and the unemployment rate held at 5.2 percent. The increase in payroll jobs followed revised gains of 300,000 in February and 146,000 in March. Average hourly earnings of private production or nonsupervisory workers rose by 5 cents in April to 16.00 dollars, following a 4-cent increase in March. Over the year, average hourly earnings grew by 2.7 percent or 0.3 percent on a month-to-month basis. Analysts had exected a monthly gain of 0.2 percent. Interest rates are about to go up on these news.
Over the month, employment growth was widespread. Notable gains continued in construction, mining, food services, and health care. Among the goods-producing industries, construction employment rose by 47,000, continuing the strong growth trend of the last 2 years. Most of April's increase occurred in specialty trade contracting (40,000), with gains in both its residential and nonresidential components. Mining added 8,000 jobs in April. Over the past 6 months, mining employment has risen by 31,000, largely reflecting increased hiring for support activities for oil and gas operations, the Bureau of Labor Statistics reported.
The Dow future and the dollar took off on the news whereas bond yields leant to the weak side. Seeing growth again on a solid track, given the above numbers, the interest rate discussion in the markets is likely to shift to the "steady and measured" mode again. After last weeks lacklustre economic indicators these most recent figures will allow the Federal Reserve to stay on its course after market participants had earlier opined that the Fed would take a pause in its step-by-step 25 basis points increases of the Fed Funds rate.

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