Disappointing job growth in May at roughly one-third of the expected figure, coupled with a downward revision for the previous two months, cast unexpected doubts on the US recovery. The labour market has slowed to half the pace seen a year ago. Even if the dole queue has dropped to 4.7%, most of the improvement stems from people refraining from actively searching for a job. Moreover, half a million are reported as part-time workers unable to find full-day employment.
This weak performance dashes hopes for the planned rate hike in June. The Federal Reserve hawks seem deprived of their main argument for implementing a preemptive monetary stiffening. The tight labour threat fuelling potential wage pressures has vanished all of the sudden. US growth tends to slow down as the stronger dollar and adverse global conditions hit exposed sectors. Only consumption and housing show resilience, maintaining their momentum. The markets openly discard any Fed move before the summer break, the greenback and bond rates falling significantly. Only an unlikely shift in future labour figures could reverse this sentiment.
This dispiriting outlook is a severe setback for those advocating an early monetary tightening, damaging the Fed’s credibility. It exposes it to harsh criticism for recklessly announcing a rate hike at the June meeting. From now on, upcoming economic data may fuel wilder than warranted speculation, with the potential for destabilising the markets and undermining the Fed’s room for manoeuvre. Janet Yellen already under fire from the Republican candidate may face a rough time ahead of the presidential election.
For all the disappointment caused by the latest jobs’ growth figure, the labour market’s performance over the last years looks impressive. The US economy has created more than 14.5 million jobs since the crisis, the employment rate for those aged between 25 and 55 years old climbing steadily close to 80%. Salaries are increasing at a healthy 2.5% annually, delivering robust real income expansion that should support growth. A record which Europeans, confronted with completely discouraging prospects, wholeheartedly envy. As Draghi underlined in his recent press conference after the ECB meeting, monetary tools do help, but prove unable on their own to cement a robust recovery unless structural reforms deliver enhanced flexibility, especially in the labour market.
*Image: Flickr / Neil Moralee
