US unemployment rate drops

The US economy added 288,000 jobs in June, while the unemployment rate dropped to 6.1 per cent, offering evidence of steady improvement in the US labour market and shrugging off concerns about weak growth in the first quarter.

The data released yesterday represents an acceleration in job creation compared to the 224,000 positions created in May, and will help validate the US Federal Reserve’s confidence in winding down its asset purchase programme by the end of the year.

But it is unlikely to trigger expectations of early increases in interest rates by the Fed next year, particularly since Fed chairwoman Janet Yellen sent a strong signal that it would wait to raise interest rates even if asset bubbles started emerging across the economy.

Ms Yellen indicated that monetary policy was too blunt a tool to tackle the problem, saying the US central bank should prevent a new crisis through tougher banking regulation.

Yesterday’s data, published ahead of the July 4th holiday, will help allay concerns about the health of the US economy after it contracted at an annualised rate of 2.9 per cent in the first quarter. Most economists and US officials have considered that a blip and are forecasting a strong rebound for the remainder of the year.

‘Gathering strength’

“This is not just a catch-up from a bad winter. It also reflects some gathering strength in the economy,” said Gad Levanon, director of macroeconomic and labour market research at the Conference Board.

Manufacturing added 16,000 jobs last month, while construction companies created 6,000 positions. Retailers hired 42,200 more people while government payrolls grew by 26,000. In assessing the health of the labour market, Fed officials are not relying as heavily on the monthly jobs report – and in particular the unemployment rate – as they used to, but are also watching for progress in labour-force participation and wage growth, which have continued to lag even as payrolls have expanded.

Labour market participation remained steady at 62.8 per cent, meaning the decline in the unemployment rate was driven by more Americans finding jobs than dropping out of the labour force. Average hourly earnings rose from $24.39 (€17.92) to $24.45 over the month. – Copyright The Financial Times Limited 2014