US economy recovery boosts markets

BATTERED world markets finally rebounded yesterday as figures showed the world’s largest economy was creating jobs – but not so many as to endanger its money-printing programme.

US retail is one of the sectors rebounding according to the figures. Picture: Getty

US employers added 175,000 jobs last month, slightly more than economists had forecast, and the news was greeted positively even though the unemployment rate ticked up from 7.5 to 7.6 per cent.

The Dow Jones opened strongly and the figures prompted a 1.2 per cent or 75.9 points rise in the FTSE 100 to 6,412.

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Investors around the world had been waiting for the latest “non-farm payrolls” figure with bated breath amid fears that the rapidly improving economy would prompt America’s central bank, the Federal Reserve, to trim its massive stimulus programme.

Signs that the recovery had stalled would also be bad for sentiment but markets breathed a sigh of relief as the latest figure was judged to be just right.

Marcus Bullus, trading director at MB Capital, said: “If ever there was a Goldilocks number, this is it. US job growth is neither too hot nor too cold – and the market’s fears about QE tapering have dissolved like sugar in a bowl of warm oatmeal.

“The spectre of the Fed winding down its monetary stimulus has weighed heavily on equity markets this week, but the news that America is creating jobs at a steady rather than stellar rate means QE will remain firmly on the table.”

The Fed has been creating money and buying bonds at a rate of $85 billion (£55bn) a month since it stepped up its third round of quantitative easing in December.

The promise of plentiful liquidity in the US and a mildly inflationary environment fuelled a rally in world markets that took many leading share indices close to or beyond their all-time highs.

Comments from Fed officials that they might start to taper their bond buying then caused a retreat from those highs that saw London’s FTSE 100 Index slide 500 points or 7 per cent in the last fortnight. Investors also took heart from the latest figures as they showed the US economy was weathering an increase in government austerity this year, as the public sector workforce declined by 3,000 in May.

But in a sign that US factories are feeling the pinch from Europe’s debt crisis, which has eroded purchasing power in some of the world’s largest consumer markets, manufacturing employment declined by 8,000 jobs.

Fed officials next meet to discuss their QE programme on 18 June, and analysts said the latest jobs numbers suggest they will carry on buying at the same rate as before.

Chris Williamson, chief economist at Markit, said recent purchasing managers’ surveys show the US growth rate probably slowed in the second quarter.

He added: “As the labour market often lags behind changes in output, the case for scaling back policy stimulus is by no means clear cut.

“The Fed is likely to watch the incoming data on business activity and demand closely before making clear signals on policy changes, and will probably want to see the actual rate of unemployment come down further before being comfortable that a meaningful and sustainable recovery is in place.”