US jobless rate hits six-year low
By Eoin Callan in Washington and Richard Beales in New York
Copyright The Financial Times Limited 2007
Published: April 6 2007 14:22 | Last updated: April 7 2007 00:30
The US unemployment rate fell to an historic low last month, according to government figures, triggering a plunge in bond prices during a holiday-shortened trading session on Wall Street.
Investors abandoned bets that the Federal Reserve would be forced to cut interest rates after figures showed employers created far more jobs than Wall Street expected last month, while the unemployment rate fell to 4.4 per cent – the lowest level in nearly six years.
The steady job creation underlines the Fed’s view that rising prices in a tight labour market pose a greater risk to the economy than a sudden slowdown due to the housing slump.
“It is great for workers. It is great for consumer demand. It is not great for those who were betting on the Fed cutting rates,” said Jeoff Hall, an economist at Thomson Financial.
The official figures showed employers added 180,000 staff to their payrolls in March and that 32,000 more jobs were created than initially estimated in the previous two months.
“There is a bias of pessimism about the economy in financial markets right now, but this will help to converge expectations of the market towards the Fed’s thinking,” said Mr Hall.
US Treasury bond prices fell and two-year yields jumped 11 basis points to 4.74 per cent as investors raced to discount the chance of a rate cut.
Futures markets also moved to price in about a 10 per cent chance of a rate cut by July, down from 20 per cent on Thursday.
“This report, together with recent rises in core inflation, means that the Fed will be more comfortable leaving rates where they are for now,” said Rob Carnell, economist at ING Financial Markets.
The fresh signs of strength in the economy boosted the dollar against the euro and the yen, and also lifted stock futures markets - although cash stock markets were closed on Friday.
But policymakers at the central bank are likely to be concerned by fresh signs of wage and price pressures in the latest figures, with average weekly earnings 4.4 per cent higher than a year ago – close to 10-year highs.
The non-farm payroll figures showed job creation was spread unevenly across industries but suggested consumers had the “wherewithal to continue spending and driving economic growth”, said Mr Hall.
There was strong hiring by retailers, suggesting “that consumers are spending and retailers feel good and are willing to take on additional staff”, he added.
The construction industry hired 56,000 workers.