While you were sleeping: US labour market's slow heal

Saturday 3rd April 2010

Expectations were simply too high. While the US economy added jobs at the fastest rate in three years, the increase reflected a far more moderate pace of improvement.

Payrolls at American employers increased by 162,000 last month, the Labor Department said on Friday, and the unemployment rate was unchanged at 9.7% for a third month.

Surveys ahead of the report, by Reuters and Bloomberg News, had the world’s biggest economy adding between 40,000 and 360,000 new jobs.

U.S. stock index futures rose slightly after the data, while government debt prices fell. The U.S. dollar trimmed gains versus the euro and the yen.

S&P 500 futures rose 3.5 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract, Reuters said. Dow Jones industrial average futures gained 30 points, and Nasdaq 100 futures added 8 points.

Futures trading was thin and ended early on Good Friday. Most global equity markets were closed. Wall Street will return to action on Monday.

The Dow Jones Industrial Average and the Standard & Poor’s 500 Index advanced on Thursday, while the Nasdaq Composite dipped. For the week, the Dow gained 0.7%, the S&P 500 rose 1%, and the Nasdaq edged up 0.3%.

The details of the jobs report showed that about 48,000 temporary workers were hired to gather information for the latest U.S. census, while private employers added 123,000 people. The fact that the majority of the new jobs were permanent was a positive.

Part of the jump in March reflected delayed hiring a month earlier because of severe winter storms.

Since the start of the economic downturn, about 8.2 million jobs were lost in the U.S. For investors, the focus has been on the return to hiring and the pace of it as they place bets on when the Federal Reserve will begin to increase interest rates.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.61% to 81.27.

The euro fell 0.5% against the dollar to US$1.3514. Traders said global macro hedge funds had sold euros following the jobs data.

Against the yen, the dollar rose as high as 94.54 yen, the highest since late August, according to Reuters data. It was last at 94.43 yen, up 0.6% on the day.

Dealers said there are options-related barriers near 95 yen, which is serving as strong resistance to the dollar/yen pair.

Sterling dropped 0.6% to US$1.5197.

In a report released on its website, the People’s Bank of China forecast that there would be a limited rebound in the U.S. dollar this year because of the high U.S. fiscal deficit and low interest rates, Bloomberg reported.

"Even if the dollar rebounds, its strength will be limited," the bank said in its statement. "The Federal Reserve may keep the interest rate at a super-low level for a relatively long period of time and the fiscal deficit is at a historically high level. Rebounding consumption may expand the current account deficit and the global economic recovery may ease risk aversion."

Treasuries fell, driving the yield on 10-year notes up 0.06 percentage point to a 10-month high of 3.93%.

"The data supports the idea of a sustainable recovery going forward," Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of 18 primary dealers required to bid at Treasury auctions, told Bloomberg.

Still, the labour market remains weak.

About 44.1% unemployed workers in March had been out of a job for 27 weeks or more.

In the goods-producing sector, manufacturing added 17,000 jobs in March and construction payrolls grew 15,000. Payrolls in the services sector increased as retail employment climbed 14,900. Government employment increased 39,000, reflecting the temporary hiring for the census.

The average workweek for all employees rose to 34 hours from 33.9 hours in February.

Payrolls for January were revised upward to show a 14,000 gain instead of a loss of 26,000, while February was adjusted to show only a loss of 14,000. Previously, February had been reported as down 36,000.

Businesswire.co.nz

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