US jobs figures strengthen prospects for reducing QE

The US saw more jobs created last month than forecast but jobless rate remained static. Picture: Getty

The American economy added a net 195,000 jobs in June compared to forecasts of just 165,000 while the unemployment rate held steady at 7.6 per cent as more people entered the workforce.

The news saw the pound fall sharply against the dollar for a second day running, adding to signals from the Bank of England on Thursday of continued low interest rates.

Economists in the US believe continuing signs of a strengthening economy will see the quantitative easing programme there scaled back.

The FTSE 100 fell 46.15 pts to close at 6375 while the Dow Jones in New York rose slightly in early trading.

“The strong advance in the employment count provides support for the Federal Reserve to start to taper back on its quantitative easing in the near future,” said Kathy Bostjancic, director of macroeconomic analysis at the conference board.

The closely watched employment report was released two weeks after Fed chairman Ben Bernanke offered an upbeat assessment of the economy’s outlook and said the US central bank expected to start trimming its bond purchases later this year.

The recent signals from Bernanke that a start date for reducing bond purchases is approaching triggered a global sell-off in stock and bond markets, which have come to rely on the Fed as a steady source of demand for financial assets.

Jobs growth has averaged 196,333 per month over the last three months, close to the 200,000 jobs that economists say the Fed is targeting.

The employment report also showed weekly hourly earnings rose by the most since November.

The central bank is closely watching the unemployment rate and has said it expects it to drop to around 7 per cent by the middle of next year, when it anticipates ending the bond purchases.

The jobless rate was unchanged last month because the labour force grew – a sign of confidence in the jobs market.

All the job gains in June were in the private sector, where payrolls increased by 202,000 after rising 207,000 the prior month.

Government employment, in contrast, dropped 7,000 jobs after falling 12,000 in May.

Consumer-related areas such as retail and wholesale trade showed further gains in employment in June, reflecting strengthening demand that was highlighted by a surge in automobile sales. Retail jobs increased 37,100 last month after advancing 26,900 in May.

Manufacturing payrolls fell by 6,000 jobs, declining for a fourth straight month. Construction employment rose 13,000 adding to May’s 7,000 jobs as the housing recovery pushes ahead, but it remains constrained by a still sluggish non-residential sector.