Friday, July 07, 2006

US Job growth lackluster in June

(Source Article: June jobs report creates Fed-headache - Reuters)

Economists reported today that a combination of weak job growth and rising wages in Friday’s June payrolls report will keep the Fed Reserve policy hanging in the balance. The report also showed the biggest year-on-year jump in average hourly earnings in five years, reviving fears of wage inflation.

Accompanying the increase in average wage, however, was a less-than-predicted increase in the number of jobs: only 121,000 non-farm jobs were created in June, below Wall Street predictions of 185,000, and other predictions, including that of ADP Employer Services (ADP) of 368,000. Economists say that this non-farm payroll report is one of the most important gauges of US economic health. (see ADP loses luster after June miss)

Despite slow job growth overall in June, US small businesses hired in a relative fervor, adding an average of 0.3 employees per small business. However, even small businesses can expect to see less job growth in the coming months as economists expect consumer spending to result in less of a need for new employees at such businesses. (see June job growth strong at small US firms - Reuters)

Additionally, private job growth was below 100,000 new jobs for the third straight month—numbers that the private job sector has not seen since 2003. Also, unemployment was below 5% for the seventh straight month; most economists view 5% unemployment as the US rate of full employment, below which wage pressures mount more rapidly. All of these factors are putting the Fed in a position in which it doesn’t want to be.

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