US unemployment : Fed rate rise in play as US job growth recovers

According to the Washington survey on 8th May US job growth bounced back last month and the unemployment rate dived to almost 5.3 percent. An economic growth can be expected at the start of the second quarter that could light up the outlook for a Federal Reserve rate hike by the end of this year.

“We see this report as reducing concerns that weak first-quarter growth represents a loss of economic momentum,’’ said Michael Gapen, chief US economist at Barclays in New York.

Nevertheless, according to him the Fed should not bump rates higher right away, since the bounce back was not strong enough.

According to the March payrolls only 85,000 jobs were created highlighting the weakness in activity at the beginning of the year.

Wall Street investors were optimistic by the report to say the least as reflected by the US stocks ascend by one percent.

Debts of US Treasury dropped marginally and a slight rise was spotted in the dollar amongst a other currencies.

According to several economists, Fed officials might tighten their policy on wage growth due to the limp condition of the labor market.

“Even without wages or inflation picking up, we do not think the Fed will feel comfortable sitting at zero as the unemployment rate closes in on 5 per cent,’’ said Michelle Girard, chief economist at RBS in Stamford, Connecticut.

The overall quantity of employed Americans or those searching for a job rose to 0.1 percent. Fed’s other activities or trial procedures also improved further.

Additionally, the long-term unemployed rate continues to decline, drowning to its lowest level since 2008. Even though there was a slight rise in part-time workers, the drift seems to lean in favour of full-time employment.

However, the factor of wage seems to continue as a weak spot. In April merely 3.1 cent rose as average hourly earnings.

The indolence in average hourly earnings seems to go in the other direction as far as other compensation measures are concerned.

“With the unemployment rate approaching full-employment levels it will only be a matter of time before wages start to rise at a somewhat swifter pace,’’ said Scott Anderson, chief economist at Bank of the West in San Francisco.

The government reported that the economic expansion was only a 0.2 per cent annual rate in the first quarter, whereas the data provided earlier this week shows a wider-than-forecast trade deficit, which suggests GDP actually shrank.

In April, an acceleration in job growth was seen, with the exception of the mining sector.

Employment in the Private services rose to 182,000 and there was a 10,000 increase in government payrolls as well.