US interest rate rise still looks likely to happen in September despite latest job numbers

2nd July 2015

The latest payroll numbers from the US came in weaker than some economists had been anticipating but given the drop in the unemployment rate, a September lift off for interest rates still looks likely.

June showed a 223,000 increase in US payrolls, far lower than the 290,000, research house Capital Economics had been expecting. But on the plus side, the figure was offset to some degree by the fall in the unemployment rate, to 5.3% from 5.5%

Paul Dales
senior US economist at the groups said: “We still think there’s a good chance that the Fed will hike rates in September.

“The payrolls figures still show that the economy is back on track after the weakness in March and April.”

The fall in the unemployment rate had more to do with a sharp 432,000 decline in the size of the labour force than a surge in employment – on the alternative household measure employment actually fell by 56,000 noted Dales. But he added the drop in the labour force just followed some large rises in the previous two months.

“The unemployment rate may nudge up again in July, but we suspect it won’t be long before it’s in line with the Fed’s estimate of the natural rate of 5% to 5.2%,” he said.

Wage growth over the month however remained subdued. Average hourly earnings were unchanged in June and the annual growth rate fell back to 2.0% from 2.3% in May.

As such the lack of a sustained acceleration in wage growth could prompt the Fed to keep pushing back the timing of the first rate hike. Dales said: “With other measures suggesting that wage growth has risen and the unemployment rate on a sustained downward trend, a September rate hike remains very much in play.”

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