Heading into the release of official Government employment data for May expectations were bullish, with similar payroll growth expected to that of April.
By Peter Martin
Friday, June 5, 2015
The actual result was even more positive than had been expected, with non-farm payroll growth coming in at 280,000, while there were upward revisions totalling 32,000 for the previous two months. A lot of the strength was in private payrolls, where the change went from a healthy 206,000 in April to a colossal 262,000 in May.
In a further sign of tightening in the labor market, average hourly earnings rose to a higher-than-expected 0.3% from April’s 0.1%. A slight quirk in the report was a surprise upward tick in the unemployment rate, edging up to 5.5% from 5.4%, but with so many jobs being added even this can be taken as a positive, with the upturn in the labor market now apparently attracting more people into actively seeking work.
Despite the weak blip we saw in March (revised higher by some 34,000 today, but still with just 119,000 growth), it looks like the Fed is comfortably on top of the employment half of its dual mandate (though the unemployment rate is still a little above the longer-run normal rate). The other part of its mandate, to achieve stable prices, is sought by aiming for a 2% PCE inflation target and this is proving more tricky for the Fed. The lift in this month’s average hourly earnings is a step in the right direction, but improving consumer’s wealth is one thing and getting them to spend it is another, as we saw from the personal income and outlays report earlier in the week, where the indications for April were that consumers were choosing to save rather than spend their extra income. Though today’s employment report will bolster the argument made by hawks at the Fed to raise rates sooner rather than later, doves will still be able to point to the PCE price index, the annual change of which actually dropped in the most recent report and at 0.1% remains a long way off target.
The employment data has proved to be a big boost for the dollar, resulting in substantial gains against many of its major peers. EUR/USD dropped 1.3% to 1.1091 and GBP/USD fell 0.95% to 1.5222, while the dollar strengthened more than 1% against both the Japanese yen and the Swiss franc.
The Canadian dollar held its own though, after Statistics Canada revealed a massive rebound in employment in May. Canadian employment had plunged by 19,700 in April, but growth returned in May with a 58,900 jump in employment, a far better result than had been anticipated and the biggest gain seen since last October. More than 20,000 jobs were added in manufacturing, a sector that has historically been pro-cyclical. The unemployment rate held steady at 6.8% thanks to an increase in the participation rate. Combined with yesterday’s strong result from the Ivey Purchasing Managers’ Index for May, today’s report suggest the Canadian economy may be beginning to accelerate after a weak stretch. USD/CAD rose just 0.2% to 1.2526.
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