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Last updated: February 1, 2013 5:07 pm
The US economy added more jobs than previously announced in 2012’s final months, sending equity markets higher and briefly pushing the Dow Jones Industrial Average of blue-chip shares above 14,000 for the first time since 2007.
The latest monthly jobs report provided evidence that a fall in gross domestic product at the end of last year was just a blip. However, the unemployment rate rose to 7.9 per cent in January, pushing it further away from the Federal Reserve’s target and calming market fears that the central bank might bring an early end to its programme of monetary stimulus.
The US added 157,000 jobs in January, and large upward revisions to November and December collectively added another 127,000 jobs, suggesting that the US labour market was improving at the end of 2012.
Treasury markets focused on last month’s new jobs figure, which came in shy of the 165,000 consensus forecast, and on the headline unemployment rate, which ticked higher from 7.8 per cent in December.
The Fed has said it will maintain its extraordinarily loose monetary policy, including a programme of bond buying known as quantitative easing, until the unemployment rate falls to 6.5 per cent. Traders broadly expect the Fed to keep up purchases at its current pace of $85bn per month until the second half of this year, but signs of a strengthening economy had begun to shake that faith.
The yield on the benchmark 10-year Treasury, which rose above 2 per cent ahead of the data, slid to 1.95 per cent shortly after the release. By late morning it was 1.97 per cent.
Together, the prospect of a boost to asset prices from extended Fed activity and the positive revisions in the employment report provided multiple reasons to buy equities and the US stock market rallied almost 1 per cent. The Dow was trading at 14,004 by late morning and the S&P was up 13 points at 1,511.
“We seem to be plugging along with fairly modest growth,” said William Even, professor of economics at Miami University’s Farmer School of Business. “But if we continue at this rate, it’s going to take a long time to get unemployment back down to acceptable levels.”
The unemployment rate rise was hard to interpret as the Bureau of Labor Statistics conducted annual revisions to its estimate of the US population. The overall picture from the labour market is one of steady growth in jobs that is not fast enough to bring down the unemployment rate.
“While it is encouraging that employment growth was somewhat better in 2012 than we had thought previously,” said Michelle Girard, senior US economist at RBS, “we do not think 180,000 payroll increases per month and a 7.9 per cent unemployment rate meets the Fed’s criteria for ‘substantial improvement’. Thus, we do not believe these data alter the outlook for Fed policy.”
The positive revisions in the data appear to contradict the 0.1 per cent annualised fall in US GDP for the fourth quarter of 2012 – which raised fears of a slowdown when it was released on Wednesday – and suggest the decline was due to one-off factors.
Most jobs growth came from the service sector, with retailers adding 32,600 positions, 25,000 more staff in business services, and 27,600 more jobs in healthcare.
The recovery in construction – one of the biggest changes to the labour market in recent months – continued with a further 28,000 jobs. But government continued to shed labour as fiscal policy tightens, dropping another 9,000 positions.
The jobs report has to be treated with some caution because of a large margin of error: plus or minus 90,000 for total jobs and 0.2 percentage points for the unemployment rate.
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