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Strong Jobs Report Sends Dollar and Interest Rates Flying

 

The American job economy turned in its best performance this year sending the dollar soaring against the euro and rekindling speculation that the Federal Reserve will raise interest rates in September for the first time in nine years.

May's 280,000 new jobs,  well beyond the  median market forecast of 226,000, combined with an additional 32,000 from revisions strongly suggests that the March  employment weakness was an anomaly and that economic growth in the second quarter may be better than currently anticipated. First quarter GDP is tracking at a 1.1 percent annual rate in the Atlanta Fed's GDPNow estimate. The unemployment rate rose 0.1 percent to 5.5 percent

The Federal Reserve has been hinting for over a year that if the economy continues to improve and the data supports it’s strengthening case the governors would could raise rates as early as this month.  An increase in the Fed Funds rate at the June 17th meeting from 0.25 percent where it has been since December 2008 was probably eliminated by the first quarter’s surprising 0.7 percent contraction.  

The Federal Reserve policy setting board, the Federal Open Market Committee, meets twice more after this month on July 28-29 and September 16-17 before the end of the third quarter. The governors are likely to wait to September at the earliest until making their decision on rates because that will give the members three more employment reports to consider. 

The dollar gained over 150 points versus the European currency to 1.1120 in the first minute of trading after the 8:30 am release of the Employment Situation Report from the Bureau of Labor Statistics. The dollar continued higher touching 1.1050 at mid-morning before retreating to just over 1.1100 by early afternoon. 

The yield on the benchmark 10-year Treasury rose as much as 10 basis points in the immediate aftermath, from 2.3375 percent to 2.4347 percent, the highest it has been since last October 6th.That however, proved unsustainable and by early afternoon about half the gain had been surrendered to 2.3896 percent at 12:50 pm. 

Private payrolls jumped 262,000 also well over the 220,000 forecast. Manufacturing payrolls added 7,000 workers.

Average hourly wages improved 0.3 percent in May, up from the 0.1 percent gain in April. On the year earnings were 2.3 percent higher, moving from 2. 2 percent in April, which was also better than the analysts’ forecast.  Working spells were unchanged with average weekly hours at unchanged 34.5. 

Household employment jumped 272,000 on the month from 192,000 in April. It was the second best month this year after January’s 759,000 gain. 

One of the most closely watch statistics, the labor force participation rate moved 0.1 percent higher to 62.9 percent its second gain in a row. It remains just barely above the more than 35 year low of 62.7 percent which it has touched three time in the last ten months.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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