Shock US jobs report as payrolls growth lowest for more than 5 years – as it happened

The poor US jobs figures only add to the concerns about the country’s economy, which may still be too weak for a rate rise.

That is the view expressed by Federal Reserve governor Lael Brainard in a speech in Washington. She said the non-farm payroll numbers suggested that the US labour market had slowed, and added that any rate rise should also wait until it was clearer that China and Europe are doing better, and the UK’s referendum on EU membership was out of the way. She said:

Recognising the data we have on hand for the second quarter is quite mixed and still limited, and there is important near-term uncertainty, there would appear to be an advantage to waiting until developments provide greater confidence.

Prudent risk-management would suggest the risks from waiting until the totality of the data provides greater confidence in a rebound in domestic activity, and there is greater certainty regarding the “Brexit” vote, seem lower than the risks associated with moving ahead of these developments.

Fed’s Brainard: Risk management suggests waiting to raise rates

US energy companies added 9 oil rigs last week, bringing the total rig count up to 325 according to the latest Baker Hughes report. This is only the second time this year the rig count has gone up, and then it was only one rig in the middle of March. It comes as oil hit $50 a barrel despite this week’s Opec meeting failing to agree an output ceiling.

The number of gas rigs fell however, making a total increase of four rigs:

US Baker Hughes Rig Count (Jun 3) 408, previous 404
Oil Rigs 325, previous 316
Gas Rigs 82, previous 87

The disappointing non-farm payroll numbers gave a shock to investors who were expecting a calm end to the week, sending stock markets sharply lower, hitting the dollar and prompting a spate of bond buying.

There was a two way pull between those who saw the job figures as positive, in that they would prevent the US Federal Reserve from raising interest rates this month, and those who worried about the signs of a weak US economy. By the close of trade in Europe, the former had regained some ground and markets recovered from their worst levels. Indeed UK shares, supported by rises in commodity companies as oil held fairly steady during the day, managed to end up in positive territory. The final scores showed:

Back with the US jobs:

Probability of June rate hike:
Pre-jobs report: 20.6%
Post-jobs report: 5.6%
h/t @andrewflowers

Friday rating agency update:

S&P: Ireland ‘A+/A-1’ Ratings Affirmed; Outlook Stable

We expect the new minority government in Ireland to keep pursuing open and proactive economic policies and continue fiscal consolidation. Thanks to rapid nominal GDP growth, we expect net general government debt to decline to below 80% of GDP in 2017.

We are therefore affirming our ‘A+/A-1’ sovereign credit ratings on Ireland. The stable outlook balances our view of upside potential for the ratings if Ireland’s fiscal position continues to improve against risks associated with external factors such as a potential Brexit, or weaker global demand.

Bond prices rose and yields fell as investors looked for havens after the shock US jobs numbers.

In the UK, 30 year yields fell to 2.084% after the US data, the lowest level since February 2015. Germany’s 10 year Bund yield fell to 0.073%, its lowest this year.

The poor jobs numbers following various hawkish comments from US Federal Reserve members make chair Janet Yellen’s speech on Monday evening a potentially tricky affair. David Morrison, senior market strategist at Spread Co, said:

Over the last month it became apparent that the US Federal Reserve was unhappy that the market refused to price in the prospect of a summer rate hike. Consequently, over the past few weeks we saw a confusion of Fed Heads come out to declare that their conditions for monetary tightening were being met. Some were claiming that two, three or even four rate hikes were possible in 2016 – a ludicrous proposition given the few windows available due to the US Presidential Election, let alone the uncertain outlook for the US and global economies.

This constant barrage of hawkishness pressed the markets to sharply cut the odds on a summer rate hike. This led to a rally in the dollar together with a nasty and protracted sell-off in precious metals. That’s all been reversed now thanks to today’s payroll release.

A week ago Federal Reserve chair Janet Yellen was at Harvard suggesting a summer interest rate rise could on the cards. Now, after the poor jobs figures, maybe not:

Window to hike is now closed: “Fed May Go in Sept.; June Seems Off Table, July Too Soon” BofAML

US #PMI surveys point to #GDP growing at an annualised rate of just 0.7-8% in Q2

The disappointing US services sector data which followed quickly on from the poor jobs numbers provides another reason for the Federal Reserve to leave rates unchanged this month, says James Smith at ING Bank:

After May’s non-farm payrolls plummeted, the ISM Non-manufacturing came crashing back down to 52.9 from 55.7, much lower than expected. Aside from supplier deliveries, the other main components that contribute to the headline recorded fairly sizable falls (employment and business activity), particularly new orders, where the size of the month-on-month drop was the largest since November 2008. This is especially concerning, given that in theory it sets the precedent for (or “leads”) future business activity.

Although the ISM surveys are perhaps not the most central part of the Federal Reserve Open Market Committee reaction function, the magnitude of the fall means that it will probably feature in the debate over near-term policy. Indeed, given that the US recession story has faded away over recent weeks, it is possible that the combination of today’s weak non-farm payrolls figure and the drop in the ISM Non-manufacturing prompts the debate to resurface to some degree over coming weeks. Either way, it is another reason for the FOMC to leave rates unchanged in June, with focus now on Chair Yellen’s speech on Monday to see how the latest data will affect policy in coming months.

Still, US factory orders were more or less in line with expectations:

US Factory Orders Data (Apr)
Factory Orders M/M +1.9% v +1.9% exp, prev +1.1% rev +1.7%
Ex Transportation M/M +0.5%, prev +0.8% rev +1.0%

More signs of weakness in the US economy, this time from two surveys of the service sector.

First the ISM non-manufacturing PMI fell from 55.7 in April to 52.9, well below the consensus forecast of 55.5. The new orders index at 54.2, down from 59.9, was the lowest since February 2014.

Here’s a chart showing the jobs numbers:

Joey Lake, US analyst at the Economist Intelligence Unit, said:

The jobs report was bad, bad, bad: there is no positive spin to it. Not only was May a particularly weak month, the worst in almost six years, but revisions dragged previous months lower. The unemployment rate declined to 4.7% but that is because of a fall in the labour force participation rate: not what we want to see happening. Overall, the job market has added an average of 116,000 jobs/month over the past three months, a substantial slowdown from the 229,000/month averaged in 2015.

What is the reason? The Verizon strike certainly weighed on the May numbers, so we can expect a bounce back in June. And as the US approaches full employment, the rate of job creation was always going to slow. This does not seem to be indicative of a broader economic slowdown: in April consumer spending rose by 1%, the largest monthly increase since 2009.

More reaction to the disappointing jobs figures.

CEBR added its voice to those suggesting a US rate rise in June was now off the table. Senior economist Alasdair Cavalla said:

[The report] does support our assessment that now is still too early for another rise. The main factor slowing down growth in the US is exports, which is precisely where the impact of tightening will fall most heavily in the form of a stronger dollar. Fed officials have explicitly highlighted a potential Brexit as another downside risk likely to stay its hand in June. This comes on top of a still fragile global economic environment. Today’s news suggests there may be more to worry about than thought. A good year economically is thought to favour incumbent governments; the risk of a protectionist and isolationist administration by the end of the year is hardly going to give firms the reassurance they need to hire and invest. In the absence of any meaningful inflationary threat, raising interest rates in such an environment would be incomprehensible.

May 27: Yellen says rate hikes in coming months “appropriate”

June 3: 38k May payrolls

June 6: Yellen to repeat “appropriate”? Hmmm….

Bill Gross: Jobs report is big enough shock for Fed to delay rate hike

Maybe everyone went to go and work on farms.

The weaker than expected US jobs numbers have also sent European markets lower.

Germany’s Dax is now down 0.8% while France’s Cac is 0.78% lower. The FTSE 100 is just managing to stay in positive territory, up 4.5 points.

Wall Street is down in early trading following those horrible payrolls numbers – the worst in almost six years.

The biggest increase in jobs was in the healthcare sector, with 46,000 jobs added in May, while employment in professional and business services was up by 10,000.

Mining, manufacturing and construction were among the sectors where jobs fell.

The 38,000 increase in non-farm payrolls in May, which is still only 73,000 if we adjust for the 35,000 striking Verizon workers, means that a June rate hike from the Fed is now very unlikely.

In addition, the gains in the preceding two months were revised down by a cumulative 59,000. A July hike is still possible, but it would require clear evidence of a rebound in June’s payroll figures (and a UK vote to remain in the European Union).

Over recent weeks, the blocks appeared to have been gradually falling into place for another rate hike from the Fed, but the latest labour report has potentially put a large spanner in the works.

In our opinion, this may well put the final nail in the coffin for a June hike, with confirmation of this potentially coming from Chair Yellen’s speech on Monday.

Donald Trump has given his verdict on the shockingly weak payrolls numbers:

Terrible jobs report just reported. Only 38,000 jobs added. Bombshell!

May’s US jobs numbers were always going to be affected by a strike among Verizon workers, but they do not account for such a huge drop in payrolls (to 38k).

As Jana Kasperkevic from the Guardian’s New York office explains:

A strike by 40,000 Verizon workers impacted the numbers, the labor department said, and without the strike the number of jobs added would have been 72,000, which is still less than a half of expect job growth.

That ain’t Verizon

Looking at the detail of the US jobs numbers, wage growth was in line with expectations at 0.2% in May.

The unemployment rate eased to 4.7% from 5% in April, although the drop was partly explained by people who stopped looking for work and were therefore no longer classed as unemployed.

In May, 1.7m persons were marginally attached to the labor force, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months.

They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

US futures dropped after the shock payrolls figures.

On the one hand, it makes the prospect of a rate rise at the FOMC’s June meeting less likely. But on the other, it suggests the labour market in the world’s largest economy is weaker than assumed.

This is a huge miss on US jobs, as companies dramatically slowed their hiring in May.

Payrolls rose by just 38,000 in May, the slowest rate of growth since September 2010.

Eek. This will leave Fed in a pickle. US payrolls up just 38,000 in May, worst growth since sept 2010.

Breaking: US non-farm payrolls have come in way below expectations.

There were 38,000 jobs added in May, compared with expectations of a 164,000 increase.

Earlier, there were some disappointing eurozone retail sales figures.

Instead of the expected 0.3% month on month rise in April, sales were flat due to falls in Germany and Belgium in the wake of the Brussels terror attacks. This follows a 0.6% fall in the overall eurozone figure in March.

The rise in the FTSE 100 today means after a volatile few months, the index is more or less back where it began the year.

#FTSE100 back at ‘pancake performance’ year-to-date

Connor Campbell, financial analyst at Spreadex, has this take on the markets:

Having started the day strong a far better than expected services PMI (at 53.5 against the 52.5 forecast) ensured the FTSE continued to grow this Friday, the UK index rising by nearly 1%.

While not quite as enthusiastic as the FTSE, the Eurozone indices nevertheless pushed forth with a near half a percent rise this Friday despite a fairly dismal morning for data.

An update on how the other major markets in Europe are doing:

The FTSE 100 is up 1% or 62 points at 6,248. It is the biggest riser among the major European indices.

Investors are no doubt relieved that the UK services PMI did not deliver a nasty shock, but markets are also being boosted by the resilience of oil prices.

European markets have got off to a positive start ahead of this afternoon’s keenly awaited US jobs data.

Investors could do with some good news this week given that we’ve seen declines every day this week for the FTSE 100, despite the fact that the oil price looks on course for its fourth successive week of gains, with Brent prices looking to gain a foothold above $50 a barrel.

Jamie Dimon, the chief executive of JP Morgan, is the latest business leader to issue a dire warning on the potential consequences of Brexit.

Addressing the bank’s staff in Bournemouth, alongside the chancellor and remain campaigner George Osborne, Dimon said:

I think it would be a terrible deal for the British economy and jobs.

I don’t know if it means 1,000 jobs [would go at JP Morgan], 2,000 jobs, it could be as many as 4,000 jobs. And they would be jobs all around the UK.

BREAKING: JPMorgan may cut “as many as 4,000 jobs” if #Brexit happens, CEO Jamie Dimon says

Charles Evans, president of the Chicago Federal Reserve has been speaking in London about the possible timing of US interest rate hikes.

He said there was a “reasonable case” for delaying rate rises until core inflation reaches the Fed’s 2% target.

Frankly, I’m really of two minds at the moment, and I expect to take this quandary with me into the next FOMC meeting.

On the one hand, under the committee’s current approach to renormalizing policy, I think it may be appropriate to have two 25 basis point moves between now and the end of the year.

U.S. interest rates will probably rise twice this year, Charles Evans says

In other UK news, Sir Philip Green has received more criticism over BHS – the high street retail chain he sold for £1 last year that has now collapsed with the loss of 11,000 jobs.

Sir Philip Green is a very high-profile business leader. He is the person who is on the front page with Kate Moss on his arm and who has a £100m superyacht and so on.

When someone like this ends up behaving like this, people think that’s how business is, and it’s not. The majority of business leaders are people who are more likely to have mortgaged their homes to keep their company going than to own this kind of lavish thing.

Here is the breakdown of how UK services companies felt their businesses were being affected by the looming possibility of Brexit…

Markit’s chief economist, Chris Williamson, was not overly cheered by the better-than-expected services PMI number for the UK.

He says that taking into account all the data for the second quarter so far, growth is on course to halve between April and June, following 0.4% growth in the first quarter.

The PMI surveys show that the pace of economic growth remained subdued in May, as Brexit worries exacerbated existing headwinds. The data so far indicate that the second quarter is likely to see the economy grow by just 0.2%.

Growth has collapsed in manufacturing and construction, leaving the economy dependent on the service sector to sustain the upturn, though even here the pace of expansion has remained frustratingly weak so far this year.

The better-than-expected UK services PMI should come as a relief to investors.

A weaker number for May would have started to build a more worrying picture of how the UK economy is performing in the second quarter.

Breaking: The UK services sector grew at a faster rate than expected in May.

The headline index on the Markit/CIPS PMI increased to 53.5 from 52.3 in April. Economists were expecting a smaller rise to 52.5. Anything above 50 indicates expansion.

So Italy let the side down on an otherwise positive set of services PMIs for the eurozone.

Chris Williamson, chief economist at Markit, said combined with the manufacturing surveys published earlier in the week, the latest PMIs suggested the eurozone economy was moving along at a sluggish pace.

The final PMI numbers for May have come in slightly ahead of the earlier flash readings, but still point a eurozone economy which seems unable to move out of low gear.

The survey data are signalling a GDP rise of 0.3% in the second quarter, suggesting the growth spurt seen at the start of the year will prove frustratingly short-lived.

The eurozone’s services sector expanded at the fastest rate in three months in May, boosted by growth in Germany, France, Spain and Ireland.

The headline index measuring activity on the Markit PMI survey edged up to 53.3 last month from 53.1 in April.

All major indices are higher this morning after Wall Street closed up last night.

Investors are holding their nerve so far. There were no nasty shocks on Thursday from the European Central Bank’s meeting of the governing council in Vienna, where all policy measures were left on hold.

Activity in Spain’s services sector grew at an accelerated pace in May according to the Markit PMI survey.

The headline index increased to 55.4 from 55.1 in April. It was better than the 53.5 forecast by economists, and will no doubt be a source of relief for investors following weaker manufacturing numbers earlier in the week.

Following on from Wednesday’s disappointing Spain manufacturing PMI numbers, the latest services data are something of a relief, with growth in activity and new business ticking up slightly.

The figures provide hope that the sector will be able to successfully weather headwinds such as a weak global environment and domestic political instability and remain in growth territory in the near-term at least.

Brent crude oil has edged higher this morning, up 0.3% at $50.2 a barrel.

It appears that a stalemate at Opec’s meeting in Vienna on Thursday – where Tehran refused to support a plan by Riyadh and others to freeze their crude output – has been partially offset by the latest US stockpiles data.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

We’ll get further colour on whether the UK economy has hit a partially self-inflicted slump brought about by all the hysteria surrounding the upcoming referendum vote.

A poor number here could well raise concerns about a potential negative quarter for the UK economy, in the process increasing speculation about a possible rate cut by the Bank of England.

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Read the original at Economics | The Guardian.