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Weak US jobs growth ‘rules out’ interest rate hike

Janet Yellen vidUS jobs growth came in well below expectations, effectively ruling out an interest rate rise next month.

The figures, showing the creation of just 38,000 jobs against predictions for 160,000 has led analysts to believe the US economy is not recovering at the pave that policy makers believe.

The Dollar and Stock Index futures  fell  in response to the data. US Treasury Bonds rallied and ten year yields fell 5 bps to 1.74%.

Mihir Kapadia, CEO at Sun Global Investments, said:  “One should not read too much in one months’ numbers but this poor data point suggests  that the US economy’s pace of growth may be beginning to slow . These numbers may prompt  Federal Reserve officials to put off interest rate increases.”

Russ Mould, investment director at AJ Bell, said: “A stunningly disappointing US non-farm payrolls number for May could well put a further US interest rate hike on the back burner, confounding the latest round of hawkish rhetoric from the central bank’s chair, Janet Yellen (pictured) and several of her colleagues.

“America added just 38,000 non-farm jobs in May, the weakest figure since summer 2011.

“The Fed may latch on to the official unemployment rate, which fell to 4.7% in May from 5.0% in April, but this is still a lagging indicator and therefore a poor one upon which to base monetary policy.

“Janet Yellen and the FOMC would be better off looking at the local purchasing managers’ indices, where both New York and Chicago produced very poor readings this week, as well as taking note of the trend in revisions to the non-farm payrolls data.

“The US Bureau of Labor Statistics cut its initial estimate for non-farm payrolls for the third time in a row, to suggest the US economy is getting long in the tooth and potentially running out of steam. This trend must be watched closely as downturns tend to see substantial downward revisions. The only good news at the moment is the cuts are quite small.”

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