US job creation at highest level for fifteen years

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Data released today by the US Bureau of Labor Statistics showed that the US economy added 288,000 jobs over June. This is well above consensus expectations for job-creation of 205,000, but closely matches the Automatic Data Processing (ADP) estimate of 281,000, released earlier this week.

The figures for job creation in April and May were also revised up to 304,000 and 224,000 respectively. Given this, June now marks the first five-month stretch of job creation over 200,000 seen since the boom years of the late 1990s. The only month in recent history in which job creation was substantially higher was May 2010, driven by the temporary hiring of census workers.

The overall improvement in the labour market seen in today’s payroll data suggests that the economy has shown further improvement this year and that the weak Q1 GDP figures that were released in June were a blip in the underlying trend, likely driven by the severe weather. Looking ahead, Cebr expects GDP growth to return to a pace of close to 3.0% year-on-year in the remaining quarters of 2014.

The US unemployment rate, also released today, was reported to have fallen back to  6.1%, down from 6.3% in the previous two months. While this is close to a six-year low, the figure likely overstates the health of the labour market. More than a third of the working-age population of the US remain out of employment and have given up their job searches: the participation rate, which measures the share of the population either working or looking for work, remained unchanged at 62.8% in June – an over 30 year low. Cebr expects the participation rate to increase in the coming months as discouraged workers begin returning to the labour market now that it has started looking healthier. If they do, this will reveal that there is much more slack in the US economy than the current unemployment rate suggests.

Such conflicting labour market signals paint an overall mixed picture for the US Federal Reserve. While prospects for GDP growth in the second quarter are now looking more robust, the stronger the employment and GDP figures get the greater the pressure will be on the Federal Reserve to raise interest rates sooner than markets currently expect. Cebr expects interest rates in the US to rise in early Q2 2015, following the completion of the tapering of its asset purchases in Q4 2014.

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