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Saturday, 6 June 2015

US economy set for lift-off?

Jobs growth rebounds

Over in the US, the Bureau of Labor Statistics released its payrolls data for May which showed employment growth rebounding by 280,000 in the month.

Better still, March's weak result was revised up from 85,000 job gains to 119,000, while April was also revised up by 2,000 positions, meaning that the revised figures for March and April combined were 32,000 stronger than previously reported.

Total nonfarm payroll employment has increased by ~3 million in the year to May 2015, with average monthly payroll gains of 251,000 over the past 12 months.

Average payroll gains for the calendar year to date are still some way below where they were in 2014.

Meanwhile, the reported unemployment rate was "essentially unchanged" (i.e. it increased a bit) at 5.5 per cent.

Strong headline numbers, then, with 671,000 professional and business services jobs added over the past year. 

Mining employment, however, has fallen for 5 consecutive months and is down by 68,000 this year to date.

Wages grew by 8 cents per hour taking annualised wages growth to 2.3 per cent.

The data suggests that the US economy has maintained its momentum, despite many reports to the contrary through March.

Hikes in the post?

Cutting straight to the chase, what does this mean for interest rates?

Markets are now pricing a Federal Reserve rate hike by the end of the calendar year as a ~70 per cent chance, while September is considered a real possibility at ~33 per cent.

This helped to give the Aussie dollar a downward nudge to 76.26 cents.

Given that our commodity export contracts are often denominated in US dollars, this is helpful.