The US economy generated 288,000 new jobs in April, surpassing even the most upbeat forecasts and bolstering confidence that the US economic recovery will be self-sustaining.
Economists had expected a more modest figure after 337,000 jobs were created in March. Including upward revisions to March and February, the US economy has now generated 1.1 million jobs over the past eight months - helping to lay to rest concerns that it would run out of steam after the temporary impact of tax cuts and mortgage refinancing had worked through the system.
"These figures show that the Federal Reserve has succeeded in spades in extricating the US economy from its post-bubble malaise," said Mr Stuart Schweitzer, strategist at JP Morgan Fleming Asset Management.
Further evidence of strong jobs growth should give a boost to President George W. Bush, who has been harried by the Democrats over his poor record on employment. Mr Bush is still on course to be the first US president since the great depression to preside over a net loss of jobs during his term.
The yield on the 10-year Treasury bond jumped 15 basis points to 4.75 per cent after the jobs report, the highest yield since July 2002.
The dollar rose against the euro, yen and emerging market currencies.
Selling of emerging market bonds continued, with higher Treasury yields cutting the incentive for traders to search for yield in riskier assets.
The Federal funds futures market is now pricing in a string of quarter-point interest rate increases, from today's 1 per cent, starting at the June meeting of the US Federal Reserve.
Goldman Sachs, which previously expected no change in interest rates this year, changed its forecast following the jobs numbers to 100 basis points of tightening this year - in line with market expectations.
Yesterday's figures showed a broad-based rise in employment with a 21,000 increase in manufacturing jobs - the first rise since July 2000 - and a 246,000 gain in service sector jobs.
Fed officials have stressed that with inflation low, inflation expectations well-contained, and productivity rising at a 3.5 per cent rate in the first quarter, any rise in interest rates will be at a "measured" pace.
The unemployment rate was 5.6 per cent in April and has remained in a 5.6-5.7 per cent range since December. This is well above the level the Fed regards as full employment. Officials also believe the rate understates the amount of labour market slack as the participation rate has fallen.
The core personalised consumption expenditures index rose at an annualised rate of 2 per cent in the first quarter, the fastest for 18 months.
Crude oil for June delivery traded above $40 a barrel yesterday morning on Nymex, the highest level since an all-time peak of $41.15 in October 1990, in the build-up to the first Gulf war. It later eased to settle at $39.93, 56 cents higher on the day.
Prices rose on fears over security in the Middle East and tight US gasoline supplies, underlining concerns that world economic growth may be reined in by rising energy costs.
London Brent peaked at $37.18 and was up 47 cents to end at $37.00 a barrel.
Oil analysts say prices are not likely to ease much any time soon.
- (Financial Times Service/Additional reporting: Reuters)
