May 8, 2015
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On Friday morning European markets surged about 2.5% on the conservative victory in England starting markets on a good note that continued in North America after the job market in US has rebounded on employment gains for the month of March. The employers added 223,000 new positions in April compared to a gain of 85,000 in March (initially reported as 126,000). Economists were expecting a gain for 224,000. The majority of gains came from professional and business services (added 62,000 jobs), health care (added 45,000 jobs) and construction (added 45,000). The average hourly earnings for employees rose by 0.1% and have now grown by 2.2% in the last twelve months. This was below the economist’s estimate of 0.2%. The unemployment rate moved down to 5.4% and is closer to Fed’s expectation of “full employment”, which it pegs around 5.2%. This is the lowest unemployment rate since 2008. Michael Dolega, senior economist at TD Economics, said “The report was more or less a Goldilocks one, healthy enough to assuage fears that an abrupt slowdown in the US economy is upon us, but not strong enough to bring forward the Fed hike meaningfully”. The labor participation rate remained virtually unchanged at 62.8%, up 0.1% from participation rate. Over the last twelve months, it has stayed within a range of 62.7% and 62.9%, still near the lowest level since the late 1970s. Many economists now think that the first-quarter woes were temporary and the economy will rebound this spring, as it did last year from a first-quarter contraction. While the increasing gains in job numbers point towards the strengthening US economy but the slow growth in hourly wages paints a different picture. This absence of wage pressure will keep the Fed from raising the rates in June and it led to a rally in equity markets with all the major indices up more than 1%. While the Fed may not hike interest rates in June, a September rate hike is still on the table and this will be the first rate hike since 2006.
Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch