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U.S. labor market boosts economic growth outlook

Jobs

Thursday June 02, 2016 – U.S. private employers increased hiring in May and new applications for jobless benefits fell last week, further boosting the economic outlook for the second quarter.

Another report on Thursday showed planned layoffs by U.S.-based employers fell 53 percent to a five-month low last month.

The steady stream of upbeat data suggest the economy is regaining momentum after growth slowed sharply at the start of the year, which could allow the Federal Reserve to raise interest rates later this month or in July.

“Labor market conditions are stable, which is all the reassurance the Fed will need to act soon,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

The ADP National Employment Report showed private payrolls increased 173,000 last month on top of the 166,000 jobs added in April. Gains in private employment were nearly broad-based last month, though manufacturing lost 3,000 jobs.

The construction industry added 13,000 jobs and services industry employment increased by 175,000 jobs.

The ADP report, jointly developed with Moody’s Analytics, was published ahead of the release on Friday of the government’s more comprehensive employment report for May.

The ADP report did not appear to be affected by a month-long strike by VerizonĀ  workers, which is expected to have sliced 35,100 jobs from nonfarm payrolls in May.

The striking workers, who returned to their jobs on Wednesday, were regarded as unemployed because they did not receive a salary during the payrolls survey week.

According to a recent survey, employment likely increased by 162,000 jobs last month after rising by 160,000 in April. The unemployment rate is forecast slipping to 4.9 percent in May from 5 percent in April.

“With the Verizon strike settled, job growth will bounce back in June,” said Stuart Hoffman, chief economist at PNC Financial in Pittsburgh. “Job growth continues to run above the level needed to keep up with normal growth in the labor force, absorbing the job market slack remaining from the recession.”

The economy needs to create about 100,000 jobs per month to keep up with population growth.

The Fed has signaled its intention to raise rates again soon if job gains continue and economic data remain consistent with a pickup in economic growth in the second quarter.

Fed Chair Janet Yellen said last week that a rate increase would probably be appropriate in the “coming months” if those conditions are met.

So far, data on consumer spending, industrial production, goods exports and housing have suggested the economy is gathering momentum after growth slowed to a 0.8 percent annualized rate in the first quarter.

U.S. financial markets were little moved by Thursday’s data, with traders focused on global events, including the European Central Bank’s minor upward adjustments to its inflation projections, lower oil prices and concerns about Britain’s future in the European Union.

The dollar .DXY was flat against a basket of currencies, while prices for U.S. government debt rose. U.S. stocks fell.

JOB MARKET TIGHTENING

A second report from the Labor Department also struck an optimistic note on the job market. Initial claims for state unemployment benefits slipped 1,000 to a seasonally adjusted 267,000 for the week ended May 28, the department said. Claims have now been below 300,000, a threshold associated with a strong labor market, for 65 straight weeks, the longest streak since 1973.

The four-week moving average of claims, considered a bettermeasure of labor market trends as it irons out week-to-weekvolatility, fell 1,750 to 276,750 last week.

The slightly elevated four-week average continues to reflect a spike in applications early in May, which economists blamed on the Verizon labor dispute and different timings for school spring breaks, which often make it difficult to adjust the data for seasonal fluctuations.

In a third report, global outplacement consultancy Challenger, Gray & Christmas said job cuts announced by U.S.-based employers fell 53 percent to 30,157 in May. That was the smallest number since December.

Layoffs continued in the energy sector, with companies announcing another 7,572 job cuts. The number was, however, 60 percent lower than in April. Energy firms have announced 75,232 job cuts so far this year, up 25 percent from the same period in 2015.

“Oil prices have improved somewhat since the beginning of the year … the recent gains may be enough to at least temporarily slow job cuts in the sector,” said John Challenger, chief executive officer of Challenger, Gray & Christmas.

 

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