There has been increasing speculation that the US Federal Reserve will increase interest rates this month or next, but last month’s weak job creation data raised doubts about this. These concerns have increased with the release of May’s employment data which showed that job creation in the US has dipped to its lowest level in five years.
Perversely, the jobless rate actually improved from 5% to 4.7% in May which is the best figure seen since before the Global Financial Crisis really got going in November 2007. The explanation for this apparent contradiction is that the improvement was due to unemployed people leaving the labour market and therefore no longer being considered as unemployed.
The May job creation total was just 38000; the worst monthly performance since September 2010. A strike at Verison meant that 34000 people were considered to be unemployed and so added to the total, but even if this is discounted, the underlying figure is very weak.
Mining and manufacturing sectors saw 36000 jobs lost during May which was that area’s worst performance since February 2010.
Whilst the unemployment rate (4.7%) would still be supportive of a tightening of monetary policy, the perception of the poor job creation data is that the US economy is weakening and therefore the odds against an imminent rise have lengthened. The Federal Reserve will meet later this month and the situation will be clarified somewhat then.
The Dollar fell against the Yen in a perfect storm caused by the poor US economic data and relief in Japan that an increase in sales tax has again been kicked into the long grass. The Greenback has fallen from 111.35 (May 30 2016) to trade at 107.2 currently, having recovered from a low of 106.6 on Friday.