Saturday, 4 June 2005

US May non-farm employment disappoints

The main story yesterday was US non-farm employment for May, which was up 78,000, according to the Labor Department. Job gains were seen in health care and construction, but manufacturing continued to shed jobs. The unemployment rate was reported to be 5.1 percent.

The numbers were well below consensus. It certainly did not impress Barry Ritholtz, who wrote: "This Nonfarm payrolls report stunk the joint up." Other economists' reactions to the report were summed up by him in this post.

Fed-watcher Tim Duy, however, is not convinced that this report will cause the Federal Reserve to halt its tightening.

One, however, could look at the drop in the unemployment rate, coupled with the rise in Q1 labor costs reported yesterday, and conclude that the labor market is tighter than many analysts believe... I believe policymakers will look at the whole of the data and conclude that the pace of hiring continues its erratic behavior, while the falling unemployment rate and rising unit labor costs suggest the possibility of incipient inflation pressures -- implying Fed officials believe they will have more work to do after this month's meeting.

The ISM's Non-Manufacturing Business Activity Index does not suggest so, however. It fell to 58.5 in May from April's 61.7. The Global Services Business Activity Index, on the other hand, edged up to 57.8 in May from 57.4 in April. Both the US and global price sub-indices, however, recorded falls in May, like their manufacturing counterparts reported a few days earlier.

With such data, it's not surprising that James Picerno said that "it's not too early to wonder if the yield curve will soon invert".

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