US May 2016 Payroll Data Highlights
On June 03, 2016, the Payroll data released by the US Labour Department was not favourable and indicated mixed signals. The Job’s report portrayed the country’s slowest job growth in the last six years while the unemployment rate also hinted the tightening of job market. Even though the wage growth improved as compared to previous year, the wage growth rate was still below the average rate of 3-4% during the normal period.
Unemployment rates and Nonfarm Payroll employment (Source: U.S. Bureau of Labor Statistics)
Some of the highlights from the labour market are:
- Non-Farm payrolls were added only 38,000 which was below the average 200,000 jobs created per month over the last two years.
- Unemployment rate in US for the month of May 2016 fell by 0.3 percentage point to 4.7%, which was the lowest since 2007 November.
- Wage growth rate rose 2.5% in May and is growing in accordance to the expectations.
- Biggest job gainers – Health care (+55,400) and government (+13,000)
- Most affected sectors – Mining employment continued to decline (-10,000), Manufacturing (-18,000) and construction (-15,000)
Factors that weighed on the weak jobs data
Below are the factors that could have caused the drop in the payroll data:
- Drop in the Labour Force Participation: Typically, when labour participation rate goes up, the same reflects the economy’s recovery from the financial crisis. On the other hand, labour participation rate dropped to 62.6% and nearly 50,000 people quitting the work force in the month of April and May 2016, indicated a possible reversing in the trend. To be included in the labour force, people should be involved in job search. However, majority of the job seekers were excluded from the labour force as they had ceased to look out for jobs resulting in drop in the Job creation data. Accordingly, the unemployment rate dipped due to Job seekers exiting the labour force and not due to increase in stronger hiring.
- Strike by Verizon employees: About 36,000 Verizon employees did not report to work and participated in the strike for about six weeks thereby cutting payrolls. This also led to fall in the payroll data. However, the striking employees have returned back to work and this should push up the June figures.
- Seasonal Output Changes: Seasonal output levels also caused changes in hiring levels.
- Economic Conditions in other Countries: Volatile conditions in China and other countries also caused the decrease in job growth.
After effects of weak jobs data
Across various financial markets, following have been the impacts from the latest payroll data announced last Friday:
- The weak job report drove the US Dollar Index slightly up in June 5th week
- Experts were right in considering that there were chances of an unlikely Fed rate hike in June as Fed kept the interest rates unchanged. In addition, a downward revision done in March and April Job creation data further strengthened their view over a hold on rate hikes for June
Speech Highlights by Yellen
The Federal Reserve Chairman, Janet Yellen was optimistic about the recovery of the U.S. Economy, and at the same time was worried about the slowing job creation. She commented on the Friday’s jobs report as “disappointing” and “concerning”. Janet Yellen also said the current interest rate levels being just above zero was appropriate, and that the Fed was expected to raise rates in the future if the labor market conditions would strengthen further while inflation continues to make progress towards their 2% objective.
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