WASHINGTON: US job growth rebounded strongly in June, with government payrolls surging, but persistent moderate wage gains and mounting evidence the economy was losing momentum could still encourage the Federal Reserve to cut interest rates this month.
The Labour Department’s closely watched employment report on Friday suggested May’s sharp slowdown in hiring was probably a fluke. Lack of concrete progress in resolving an acrimonious trade war between the United States and China, however, means the bar could be very high for the Fed not to lower borrowing costs at its July 30-31 policy meeting.
But the strong pace of job gains reduced the chances of a half percentage point rate cut at the end of the month. The US central bank in June signaled it could ease monetary policy as early as this month citing low inflation and growing risks to the economy from an escalation in trade tensions between Washington and Beijing.
“We think the Fed is still on track for a 25 basis points cut given trade uncertainty and the steady downtrend in business sentiment,” said Andrew Schneider, a US economist at BNP Paribas Securities in New York. “An insurance cut by definition means getting ahead of a downturn, and waiting for employment to roll likely means being too late to deliver one.” Nonfarm payrolls increased by 224,000 jobs last month as government employment rose by the most in 10 months, and construction and manufacturing hiring regained speed. The economy created only 72,000 jobs in May. Economists polled by Reuters had forecast payrolls rising 160,000 in June.
Job growth averaged 172,000 per month in the first half. Hiring has cooled from an average of 223,000 jobs per month in 2018, in part as the economy runs out of workers. The pace, however, remains well above the roughly 100,000 needed to keep up with growth in the working age population.
The economy, which has expanded a record 10 years, has shifted into lower gear as the stimulus from last year’s massive tax cuts and increased government spending fizzles.
The trade tensions are also dimming the economy’s outlook by undercutting business confidence and leading to a downturn in equipment spending and manufacturing. Consumer spending is rising moderately and the housing market continues to struggle, while the trade deficit has widened again President Donald Trump and Chinese President Xi Jinping last week agreed to a trade truce and a return to talks. Trump has said he is in “no hurry” to make a deal and on Wednesday accused China and Europe of “playing big currency manipulation game and pumping money into their system in order to compete with USA.” Trump on Friday said the robust employment gains indicated the United States continued to do “really, really well” and “would be like a rocket ship,” if the Fed lowered rates. — Reuters
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