Data released by the US Department of Labor again shows strong job creation. The US economy has expanded by more than 200000 jobs for the 14 straight month – this is the best run in job creation seen in the US since 1994. The February job creation figure came in at 295000 which beat analysts’ expectations and caused the Dollar to rise in value against other major currencies. The surge in the Dollar is due to the fact that better employment figures in the US are assumed by some people to make it more likely that US interest rates will be rising sooner rather than later.
The currency speculators argue that if the Federal Reserve moves away from its near zero interest rate policy, providing a marginal return on holdings in the Greenback, that demand will increase and the currency appreciate further (it is largely on a Bull Run anyway). The Fed’s position continues to be one of wait and see. However, apart from regaining some control leeway on rates such that they could move in either direction in response to changing economic circumstances, it is difficult to see why the Fed would raise rates sooner than necessary. Inflation in the US economy is very low (well below target) and a rate hike is seen as a deflationary measure. Whilst the job situation is improving, the figures flatter to deceive to a certain extent, and higher interest rates would be passed on to businesses, potentially stifling the very expansion that the Fed’s monetary policy has been striving to catalyse. Equally, a strengthening Dollar is not welcome by the US export sector as it reduces their competitivity.
The reading of January’s job creation was adjusted downwards from 257000 to 239000. The unemployed rate has declined from 5.7% to 5.5%, but the labour participation rate has eased from 62.9% to 62.8%, a fact attributed to the idea that more people are seeking work as the prospects of finding a job are improving. Hourly wages rose by 2% over the year to February. However, 11% of Americans in work are working fewer hours than they would like – the pre-crisis value for this statistic is 8%. On this basis, the Federal Reserve would seem likely to maintain its “steady as she goes” course for a while yet.