The US economy created only 11,000 jobs in May, far fewer than expected, but the overall unemployment rate edged down anyway to 4.2 per cent, from 4.3 per cent in April, the US Labor Department announced yesterday.
Although the monthly job-creation performance was the weakest since January 1996, the unemployment rate itself was the lowest since 1970.
Analysts on Wall Street had expected a job-creation figure of 215,000 and a jobless rate unchanged from April. Other figures included in the government report showed average hourly wages up to $13.19 (£10.071) in May, up 0.4 per cent from April and up 3.6 per cent on May 1998. The Labor Department also said it had underestimated the year-on-year wage increases in March and April.
Dealers said the initial reaction to the employment data was confusion: while the data on job creation seemed to ease concerns about the US economy overheating, the average hourly earnings and unemployment rates pointed the other way, reviving fears that the US Federal Reserve would hike interest rates to fend off inflation.
"The reaction was all over the place, with big buy orders and then big sell flows," said IDEA senior bond strategist Josh Stiles.
Eventually, traders seemed to have concluded that the net effect of the jobs report was to decrease the probability of a rate hike, though only marginally, analysts said.
Paul Ferley, assistant chief economist at the Bank of Montreal, attributed the stock market's positive reaction to a focus on the slim payroll rise of 11,000, a sign that the economy was not overheating. "Payroll employment is sort of the main number that people key in on in these reports," said Mr Ferley.
Nevertheless, some analysts still felt that the Fed was more likely to hike rates than leave them unchanged at its policy-making Federal Open Markets Committee (FOMC) meeting on June 29th-30th.
"We would lean toward it [the jobs report] still indicating sufficiently tight labour markets that the risk remains on the side of the Fed opting to increase rates," said Mr Ferley. "The markets have been negatively affected by growing concerns about interest rate hikes, so to the extent this report eases those concerns, it might provide a bit of a reprieve from this very negative sentiment," Mr Ferley continued.
"But I think there will a limit to any kind of retracement from earlier losses, given that the US unemployment rate still remains very low, and therefore the threat is still there. There's a limit to just how far any kind of positive sentiment is going to extend," he said.
Mr Stiles, the IDEA analyst, agreed: "I suspect this will not alter the view which was gaining ground before the data that the Fed is going to raise rates soon, probably at the end of this month and if not then, in August."
