Weak US jobs data sparks talk of easing
UK STOCKS crashed within minutes of receiving shock US employment figures showing a bigger-than-expected slowdown in job creation yesterday.
The FTSE 100 fell more than 50 points to 5,820 shortly after 13:30 yesterday before recovering later as the government’s non-farm payroll data showed private sector payrolls grew just a quarter as much as anticipated in May.
Total new employment was just 54,000, compared with a consensus forecast for 190,000 new additions. May’s figure was also a significant fall from the 232,000 new payroll additions in April.
The news prompted a sell-off in UK stocks as traders interpreted it as signs of underlying weakness in the US economy.
“The market reaction was quick and fierce. The FTSE 100 fell 50 points almost immediately to trade at a new one week low before finding some support above the 5,800 level,” City Index market strategist Joshua Raymond said.
“With the week being a really bad week in terms of US economic data, one cannot blame traders for offloading stocks and downsizing risk ahead.”
The low level of job creation and continued shedding of public sector positions meant US unemployment remained unchanged at 9.1 per cent. The US private sector added just 83,000 new jobs – compared with 213,000 in April – and local government jobs fell by about 28,000.
Retail sector payrolls – a critical sector as consumer spending makes up about 75 per cent of US economic growth – fell to 9,000 from 64,000 in April.
While weak data has sparked talk about the need for the Fed to extend its $600bn (£367bn) quantitative easing programme when it expires this month, analysts believe policymakers will take the soft payrolls report in stride.
“It is likely that this will be a soft patch in the coming months but overall it will probably be a soft patch rather than a double-dip recession or something worse,” said Sean Incremona, at 4CAST in New York. The payroll report provides one of the best early reads on the health of the US economy and regularly sets the tone for global financial markets.