The percentage of Americans looking for employment in May rose slightly from 5.4 to 5.5%, so you could be forgiven for thinking that a rate rise in Federal Reserve base rate would be less likely rather than more. However, according to the Department of Labor, May saw the creation of 280000 jobs and the increased level of unemployment has been attributed to more people actively looking for a job, and registering as currently unemployed, since they believe there is a realistic prospect of finding work. These good folk did not count amongst the “unemployed” since they were not actively seeking a job; now they are and they can be considered to be properly unemployed.
The growth in jobs in May was the biggest seen this year and supports the idea that the US economy will return to growth in Q2 after a surprise contraction of 0.7% in Q1, blamed largely on a harsh winter and exports hindered by a port strike. Wages also crept up in May, rising by 0.3% over the April level and taking average hourly earnings up to $24.96 (roughly $52000 annually).
After revision to the job creation data for March and April, the US economy has seen the creation of an average of 207000 jobs each month. The new jobs have arisen across a broad range of activities encompassing professional, business services, health care, hospitality and the leisure industry.
The data has renewed speculation that the Federal Reserve may act to increase interest rates. Most analysts believe that if this does happen, it will be in the Fed’s September meeting rather than in the June gathering. The IMF publically called for the Fed to refrain from a rise until next year and to wait to see “more tangible signs of wage or price inflation”. The IMF believes that: “Deferring rate increases would provide valuable insurance against the risk of disinflation, policy reversal and ending back at zero policy rates”. The Fed would seem to be under no pressure to raise rates from the perspective of wage or price inflation at the moment, but a raise would underline the end of the hangover from the Global Financial Crisis with interest rates gradually climbing to their traditional levels.