Saturday, 3 June 2006

US May employment and other recent data point to Fed pause

Indications of a slowdown in the US economy are getting stronger. Reuters reports US May employment gains:

U.S. employers added only 75,000 new jobs in May, the Labor Department said on Friday in a report that signaled slower economic growth and led financial markets to slash bets on further interest-rate increases...

The unemployment rate, however, was a bright spot. It unexpectedly slipped to 4.6 percent -- the lowest since July 2001 -- from 4.7 percent in April...

Average hourly earnings edged up just 1 cent, or 0.1 percent, the length of the workweek dropped back from a 3-1/2 year high struck in April, and job growth for the prior two months was revised down by a net 37,000.

Factory orders are telling a similar slowdown story, although the story, as reported by Reuters, is less bad than feared earlier.

New orders at U.S. factories fell a smaller-than-expected 1.8 percent in April as orders for aircraft, machinery, and computers and electronic products slipped, a government report showed on Friday.

Wall Street analysts polled by Reuters were expecting a 2.2 drop in factory orders. The April slide was nevertheless the biggest decline since January, when they fell 2.7 percent.

Orders for durable goods, expensive items meant to last three year or longer, slipped 4.4 percent, revised from a 4.8 percent slip reported last week.

March factory orders were revised down to a 4.0 percent gain from a previously reported 4.1 percent rise.

Fed-watcher and Bloomberg columnist John Berry thinks that the recent data "leaves the door open for the Fed to keep its target for the overnight lending rate at the June 28-29 meeting at the current 5 percent".

Paul Kasriel of Northern Trust goes one step further.

... The May employment report is part of a pattern of evolving weakness in economic growth... Therefore, we do believe the FOMC will stand pat at its upcoming June 28-29 meeting. Moreover, we are of the opinion that the FOMC’s next change in the fed funds rate will be to cut it -- probably at the December 12 meeting.

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