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Last updated: May 3, 2013 7:13 pm
The S&P 500 index smashed through the 1,600 mark for the first time in history after a better than expected jobs report eased fears about the health of the world’s largest economy.
Non-farm payrolls were up 165,000 in April compared with the 140,000 gain forecast by analysts. The unemployment rate fell to 7.5 per cent, its lowest level since December 2008.
The figures suggest that the US economy has not suffered a “spring swoon”, but remains locked on a path of modest but resilient growth, held back by tax rises and cuts to public spending.
“It was, in general, a positive report,” said Paul Ashworth at Capital Economics in Toronto. “We still do have a negative impact from the fiscal squeeze. It’s not a spring swoon – but equally, second-quarter growth doesn’t look that great.”
Big upward revisions for February and March – 114,000 more jobs collectively than previously thought – brought average monthly jobs growth for the last three months to a solid 212,000.
That suggests a run of bad data recently on retail sales, durable goods orders and other indicators – which had led to fears of a broader economic slowdown – was more due to bad weather in March.
The figures mean there is little chance of the US Federal Reserve deciding to increase the $85bn-a-month pace of its third round of quantitative easing, despite saying earlier in the week that it was willing to adjust the pace up or down.
The Obama administration used the jobs report to demand a replacement for across-the-board budget cuts than began at the start of March. “Now is not the time for Washington to impose self-inflicted wounds on the economy,” said Alan Krueger, chairman of the president’s Council of Economic Advisers, on the White House blog.
Investors cheered a jobs report that seemed to eliminate a risk to the powerful run that has taken the S&P 500 up by more than 13 per cent this year. The benchmark closed 1.1 per cent higher to 1,614.42. The yield on 10-year Treasuries was 11 basis points higher at 1.74 per cent.
“It’s been an unbelievable week. The challenge now is whether we can hold above this level for the next few days,” said JJ Kinahan, chief strategist at TDAmeritrade. “If we do, it will pressure funds managers and investors to come out of fixed income and into stocks.”
On the Dow Jones Industrial Average, 25 of 30 companies rose as that benchmark crossed 15,000 for the first time, closing at 14,973.96. The dollar surged against the yen but fell back against the euro as investors switched into riskier assets. Commodities rallied.
Job creation in April was heavily weighted towards the service side of the economy. Retailers added 29,300 positions, business services created 73,000 jobs, healthcare hired a net 26,100 people and leisure and hospitality added 43,000 to their payrolls.
That was offset by weakness on the production side of the economy, with construction shedding 6,000 jobs, which may be related to the unseasonable weather, cuts of 3,000 positions in mining and flat payrolls in the manufacturing sector.
One weak spot in the report was a dip in average weekly hours worked from 34.6 to 34.4. Hours worked can be a leading indicator of hiring as employers ask existing employees to work longer before gaining the confidence to take on new staff.
The initial jobs figures have to be treated with caution as they are imprecise and prone to revisions. The margin of error for the main payrolls number is plus or minus 90,000 jobs and for the monthly change in the unemployment rate it is 0.2 percentage points.
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