15 July 2014

USA out but dollar jumps on jobs data

US dollar rallies sharply after data reading showing non-farm payrolls increased by 288,000 jobs and unemployment fell to record low of 6.1% in June.
​​The USA may have been sent packing from the World Cup in Brazil in excruciating fashion by Belgium, but it’s a much happier picture back home on the ranch.

US employers added jobs at a strong pace in June, a sign that the recovery in the world’s largest economy is continuing at a steady clip after a woeful set of first quarter GDP figures.

Non-farm payrolls increased by 288,000 jobs, the Labor Department said on Thursday (July 3rd), beating expectations for a 212,000-215,000 gain.

Also, the jobless rate slid to a six-year t​​​rough. Unemployment fell to 6.1 percent, the lowest since September 2008.

Meanwhile, April and May figures were revised up to show a total 29,000 more jobs were added in the two months.

The data sparked a big surge in USD, which climbed around half a percent against the safe haven Swiss franc and Japanese yen.

It also saw EUR/USD slide to one-week low and the greenback notch up further gains against its Australian counterpart, which had already come under selling pressure as the Reserve Bank of Australia said the Aussie was “overvalued” and urged investors to expect a “significant fall” soon.

The jobs data supports further tapering by the Federal Reserve, and indicates the central bank could be closer to tightening than many think.

However, while the short-term jobs outlook is the US is improving, what is the longer view like?

Analysts at Morningstar are pessimistic - they think employment in the US will never fully recover to its pre-crisis levels.

Tim Strauts, Senior Markets Research Analyst at the firm, has looked at the relationship between recessions and employment recovery since 1950. He says the historical data suggests that job growth has slowed significantly in the past 15 years.

He notes that since 2000 there have been two “significant” downturns in jobs, while the period of expansion was weaker than could be expected.

During the most recent contraction, starting 2008, the US economy shed 6.3 percent of jobs - double the long-term average of three percent. Also, the length of time to recover these jobs took a lot longer than previously - 76 months, versus an historical average of just 32 months.

For Strauts, the key change in this period has been advances in technology and automation.

“For example, how many toll collectors are there today versus 20 years ago?” he says. “And so in the year ahead, since technology is only going to get better and automation will take more and more jobs, we expect job growth will continue at its tepid pace.”

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