Good Jobs Helps Dollar
Better than expected jobs data from the US Department of Labor sparked US equity markets and stabilized the dollar on Friday. While the non-farm payroll report was encouraging, it hardly appears robust enough to dissuade the Federal Reserve from continuing its current bond buying initiative. US equity markets welcomed the news on two fronts; first that the Fed will most likely be continuing its support and secondly that while growth may be slowing in the second quarter, the hiring indicates the possibility of a strong finish this year.
The private sector added 175,000 non-farm payroll jobs in May, a significant improvement over April’s 149,000 new jobs. There are 4.4 million Americans that have been unemployed for more than six months. This poses a problem for the Fed who believes that many of these workers may not be employable without new skills.
In the last 12 months, the ranks of the long-term unemployed have decreased by about one million workers. Over the last year, earnings have risen by a modest 2 percent, below expectations.
The manufacturing sector lost 8,000 jobs in May. This sector is troubled by the economic woes in the euro zone. The professional and business services sector experienced surprising growth adding 26,000 temporary jobs. It is hoped many of these positions will convert to full-time employment. As expected, the leisure and hospitality industry responded to seasonal demand showing excellent job growth as did the construction industry. Retail also posted strong gains.
Despite the gains, the jobless rate jumped to 7.6 percent. The rise is attributed to 420,000 persons entering the category. This is a positive development because there are more persons looking for work. The government’s household survey indicated that 63.4 percent of the population was engaged in the labor force.
The number of Americans unemployed for 27 weeks or less edged down to 37.3 percent. The average duration of the unemployed rose to 36.9 weeks. These are important stats the Fed monitors closely.
Terry Sheehan, an economic analyst with Stone & McCarthy Research Associates, explained his take on the data: “We don’t think there is anything decisive in this report to change our outlook for the Fed decision. We think it’s still probable that they will start paring the asset purchase program at the July meeting, but we have more data due in the next couple of weeks, retail sales in particular.
“If the economic data comes in stronger in the coming weeks the FOMC could determine that it’s time to start paring back purchases.
“As to the overall report, we think it’s pretty much steady-as-she-goes for payroll growth. The uptick in the unemployment rate is not particularly concerning. It may be that the late survey period in May meant that some college graduates entered the labor force earlier than usual.”
The dollar settled after the payroll reports was released. The trend lately has been down. On Wednesday, ECG President Mario Draghi announced the ECB would not be increasing its stimulus spending. The news sent the euro to three month highs at $1.3306. By late afternoon on Friday, the euro was trading at $1.3222.
Against the yen, the dollar has given away much of its gains in the last few weeks. In September 2012, the dollar was 77.12 yen. Earlier in May, the dollar hit 103.73 yen. Late Friday, the dollar bounced back from Thursday’s low to 97.52 yen.
The volatility is clear. This week, the dollar will suffer its worst weekly loss since July 2009.
With the news that Canada added 95,000 new jobs in May, the Canadian loonie gained strength against the dollar to $1.0225. The Canadian jobs report shows the biggest addition of jobs in more than 11 years.
Tags: ECB, Euro, Federal Reserve, hospitality ad Leisure employment, Jobless rate, Loonie, manufacturing employment, Mario Draghi, Non-farm payroll report, Unemployment Rate, US Department of Labor, usd, yen