US job growth beats expectations

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US employers created more jobs than expected in June, official figures show, adding to evidence that the recovery has taken a solid hold in the world’s largest economy.

Non-farm payrolls data from the Bureau of Labor Statistics show that a net 195,000 jobs were created last month, well above the 165,000 economists expected. Revisions to April and May’s numbers also mean 70,000 more jobs were created than originally estimated.

The figures also show that the US unemployment rate remains at 7.6 per cent.

The news prompted a negative reaction on the FTSE 100 as it adds to concerns that the Federal Reserve could start to taper its $85bn-a-month bond-buying programme.

The blue-chip index, which had been trading slightly ahead in the morning, handed back its early gains and was flat on the day as of 1450 BST.

Capital Economics senior US economist Paul Dales says: “Any doubts (or hopes!) that the Fed wouldn’t follow through on its plan to taper QE3 later this year in response to some of the recent weaker activity data have been dealt a major blow by the 195,000 increase in US payroll employment in June.”

The Fed has said it will consider ending quantitative easing once the US unemployment rate falls to 7 per cent. Although that is some way off, steady payrolls growth will eventually grind this down.

Dales says: “The bottom line is that payrolls growth could probably even slow a bit from here and the Fed would still start to taper QE3 at the [Federal Open Market Committee] meeting scheduled for September, safe in the knowledge that payroll gains of 150,000 to 200,000 a month will eventually reduce the unemployment rate.”

JP Morgan Asset Management chief global market strategist David Kelly adds: “Overall, while this morning’s report was by no means a blockbuster, it does show a US economy that is steadily moving forward. For the equity market, this should translate into moderate earnings growth supporting higher stock prices. However, the bond market, even after recent increases in interest rates is still priced for an economy that is moving backwards.

Nothing in the report should really change the Fed’s timetable for removing quantitative easing and raising short-term interest rates. However, it is important to recognise that bond yields are still not appropriate given this timetable suggesting a continued rough environment for fixed income.”