Saturday, 9 July 2005

US job growth moderate, other data mixed

There was relatively little to shout about in yesterday's news, the biggest of which was probably the US non-farm employment report from the Labor Department.

Nonfarm employment increased by 146,000 in June, and the unemployment rate continued to trend down, reaching 5.0 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Over the month, payroll employment continued to grow in several industries, notably professional and business services and health care.

The job growth was less than economists expected, as AFP reported

Analysts were expecting a June rise in the closely watched "non-farms payroll" figure of 195,000. But the Labor Department also revised up the data for previous months. For May, the figure was raised to 104,000 from 78,000 given initially. The number for April was increased to 292,000 from 274,000.

Economists generally reacted moderately to the news.

In the blogosphere, Barry Ritholtz at The Big Picture did some digging into the data and concluded as follows:

The headline data may appear benign, but digging beneath shows a less than robust economy. Not awful -- just not as rosy as the scenario painted by the cheerleaders . . .

Meanwhile, Morgan Stanley chief economist Stephen Roach gave a broader view of the labour situation at the Global Economic Forum.

... Not only has private sector job growth fallen nearly 10 percentage points short of the typical recovery path, but fully 42 months into this recovery, the inflation-adjusted hourly wage rate is fractionally below the level prevailing at the trough of the last recession in November 2001...

While there are many factors that may be accounting for this squeeze on worker compensation, I continue to believe that globalization is playing the most important role. I don't think it's a coincidence that America is currently in the midst of the weakest recovery of both employment and worker compensation on record.

In other news out of the US, the Federal Reserve reported that consumers reduced their borrowing in May for the first time in 18 months. New debt declined by US$3 billion in May from the previous month, a drop of 1.7 percent on an annualized basis.

There was bad news out of Japan yesterday. Reversing the upbeat trend in recent days, the Cabinet Office reported that core private-sector machinery orders fell in May by a larger-than-expected 6.7 percent, and re-assessed the trend for machinery orders as "flat" from one showing "signs of improvement".

There was better news out of Germany. Although industrial production in May fell 0.2 percent from April, it was better than economists had expected. Furthermore, German exports rose 3.8 percent in May after a 0.5 percent drop in the previous month.

Nevertheless, the OECD's May leading indicator pointed to slowing activity ahead. The leading indicator read 103.0 in May, unchanged from a revised April figure but down an annualised 0.6 percent when compared with the average of the previous 12 months.

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