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April Non-Farm Payrolls came in at 160,000 – the lowest figure for seven months.  The number was well below both the 203,000 consensus expectation and March’s reading of 208,000 which was revised down from 215,000. The Unemployment Rate came in at 5%. This was in line with expectations and unchanged from the previous month. It remains at the lower end of the band for the “natural rate of employment” which is estimated to be somewhere between 4.7% and 5.8%. Meanwhile, Average Hourly Earnings came in at +0.3% month-on-month, or 2.5% over the 12 months ending in April. This was also as expected and unchanged from March, but indicates that on an annualised basis wages are rising faster than inflation as measured by core CPI.

So it was a bad number, and made worse by the news that the Labour Force Participation Rate also fell. As a recap, this is a measure which shows how many Americans are counted in the unemployment data. If people get so discouraged that they stop looking for work then they’re not counted as unemployed. The number had picked up recently after years of decline suggesting that sentiment was improving and job seekers were returning to look for work. However, as there two charts courtesy of Zerohedge show, the long-term downtrend may have resumed:




European equities and US stock index futures were already softer ahead of the release but fell further in the immediate aftermath. Gold and silver soared. The odds on a June rate hike also widened to their highest ever as the market now believes the Fed has no choice but to keep monetary policy loose. Typically, equity markets have rallied when the likelihood of a rate increase falls. And within 90 minutes of the payroll release the major US indices were little-changed once more.

However, there comes a time when bad data is just bad data. Eventually all it does is show that there are problems with the US economy which can’t be remedied by monetary stimulus. Remember that we saw weak Manufacturing and Non-Manufacturing PMIs earlier this week and these key metrics have been trending down for over two years now. Last week’s GDP number was also poor while corporate earnings continue to disappoint.

Of course, it’s worth remembering that we have another set of updates on payrolls, manufacturing and services, plus a GDP revision, before the FOMC meets next month. So we could have a tricky few weeks ahead of us. These will be even trickier if Fed members sound off about keeping an open mind on a June hike.


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Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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