US economy misses forecasts with 175,000 new jobs in April; FTSE 100 at record high – business live
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US economy adds 175,000 jobs in April, weaker than expected
Newsflash: job creation across the US economy has slowed, news that has weakened the US dollar and driven up share prices.
April’s non-farm payroll shows that US employment increased by 175,000 in April, less than the 243,000 expected.
That’s a sharp slowdown on March, when an upwardly revised 315,000 jobs were created, while February’s NFP was revised down from +270,000 to +236,000.
The report says that job gains occurred in health care, in social assistance, and in transportation and warehousing.
The US unemployment rate has risen to 3.9%, from 3.8%.
The report has knocked the dollar, while shares are higher in pre-market trading in New York.
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XTB: US payrolls open the door to a September rate cut
Today’s jobs report has opened to door to a cut to US interest rates in September, says Kathleen Brooks, research director at brokerage XTB.
She report that there has been “a huge movement in US interest rate expectations”, helped by the slowdown in job creation in April.
There is now a 50% chance of a rate hike in September, up from 31% in April. Earlier this week there was only 1 rate cut priced in from the Fed for 2024, as we end the week, there are now nearly two cuts priced in.
Overall, risk sentiment has been given a boost this week from a less hawkish Fed and payrolls data that is moving in the direction needed for interest rate cuts in the US. The combination of payrolls and the Fed have helped to increase rate cut expectations for 2024, with no chance of a rate hike for this year expected. What a difference a week makes.
Today’s US employment report shows a ‘historic jobs market’, says Heather Long of the Washington Post, who cites the low unemployment rate (which rose to 3.9% in April, from 3.8%).
America’s health care system was responsible for almost one in three of the new jobs created in April.
Health care added 56,000 jobs in April, today’s repost shows, out of 175,000 new additions to the Non-Farm Payroll.
Employment in social assistance increased by 31,000 in April, while transportation and warehousing added 22,000 jobs, and retailers made 20,000 new hires.
While weakening jobs growth may mean lower interest rates soon, it may also signal that the US economy is weakening.
Seema Shah, chief global strategist at Principal Asset Management, says:
“This is the jobs report the Fed would have scripted. The first downside payrolls surprise in several months, as well as the dip in average hourly earnings growth, will bring the rate cutting dialogue back into the market and perhaps explains why Powell was able to be dovish on Wednesday.
Of course, today’s weaker numbers need to mark the start of a new slower trend for multiple rate cuts to seriously be back on the agenda – but, by then, the new fear could be a slowing economy.”
US non-farm payroll: snap reaction
Reaction to the slowdown in US job creation is flooding in.
Richard Flynn, managing director at Charles Schwab UK, says:
“Investors will interpret today’s weak jobs report as a sign that demand is slowing in the labour market.
Both markets and central bankers have been looking for evidence that disinflation may be ahead, and today’s figures could indicate that the economy is slowing down. In recent months, it has become clear that the Fed is happy to move slowly in the cutting part of the rate cycle, but unwanted and unexpected weakness in the economy, as we are seeing today, may cause a shift in this approach.
A dive in the labour market may be what it takes to push the Fed from a stroll to a sprint.”
Mahmoud Alkudsi, senior market analyst at ADSS, says:
“This is a rare miss for the US jobs market which could potentially spell the end of the ‘higher for longer’ rhetoric we have become accustomed to. This will have surprised the Fed following Wednesday’s decision to hold interest rates further.”
“Though the Fed will see this as a step towards getting comfortable with a cut in interest rates, the relative strength of the jobs market remains too high for them to consider a cut before late Q2.”
And here’s Neil Birrell, chief investment officer at Premier Miton Investors:
“What will the Fed make of this? At last there is evidence of some weakness in the US jobs market. Rate cuts will move back up the agenda as a result and there is little doubt that markets will take this as good news. While we shouldn’t make too much of single data prints, this could be the start of a positive trend for the Fed.”
US wage growth slows
Wage growth across America has slowed – a blow to workers, but just what central bankers want to see.
Average hourly earnings growth slowed to +0.2% in April, down from 0.3% in March.
On an annual basis, earnings rose by 3.9%, down from 4%.
That means real wages (adjusted for inflation) are still rising (as US inflation was 3.5% in March).
FTSE 100 at new record high
In London, the FTSE 100 share index has jumped to a new alltime high.
The blue-chip share index has rocketed to 8248 points, a new intraday high, mirroring the jump in Wall Street futures.
Ocado, the grocery technology business, is up 7%.
Takeover speculation continues to push up Anglo American by over 3% too.
The dollar has tumbled by a cent against the pound, as April’s weak jobs report fuels hopes of an early cut to US interest rates.
Sterling has jumped to $1.2624, the highest in over three weeks, up from $1.2531 last night.
US economy adds 175,000 jobs in April, weaker than expected
Newsflash: job creation across the US economy has slowed, news that has weakened the US dollar and driven up share prices.
April’s non-farm payroll shows that US employment increased by 175,000 in April, less than the 243,000 expected.
That’s a sharp slowdown on March, when an upwardly revised 315,000 jobs were created, while February’s NFP was revised down from +270,000 to +236,000.
The report says that job gains occurred in health care, in social assistance, and in transportation and warehousing.
The US unemployment rate has risen to 3.9%, from 3.8%.
The report has knocked the dollar, while shares are higher in pre-market trading in New York.
Here’s Simon French, chief economist at City bank Panmure Gordon, on today’s disappointing public sector productivity stats (see 10.20am):
Here’s more details of the shareholder criticism at HSBC’s AGM:
Another HSBC shareholder qustions how the bank can claim staff were fully aware of the pensions clawback issue.
Q: If that was true, why are there 10,000 people in a Facebook campaign group? And was CEO Noel Quinn fully informed when he was a Midland Bank staff member?
Quinn says he was “well aware” of clawback – a reply that is greeted by hoots of derision from the floor of the AGM.
HSBC are hearing the anger of former employees who argue the bank is simply wrong to have clawed back part of their pensions.
The Midland Clawback Campaign group have proposed a resolution at today’s AGM to end the practice, and are unhappy that chair Mark Tucker is advising shareholders to oppose it.
The clawback was introduced in the 1940s and allows workers to pay lower contributions into their occupational pension plans, and for employers to deduct some – or all – of the basic state pension amount from their pension payments.
One campaigner, Nancy Ball, tells the AGM of examples of HSBC pensioners who have lost over 20% of their pensions due to the clawback.
In contrast, she points out, CEO Noel Quinn’s pay almost doubled last year.
Quinn, who announced his retirement this week, should reflect on whether he could, and should, have supported his Midland Bank colleagues in their retirement [Midland was taken over by HSBC in 1992].
Ball also points to the irony that HSBC is refusing to end the clawback, while also asking shareholders to remove the cap on its bankers’ bonuses.
Ball insists that it is “balderdash” to say that the clawback was clearly explained to staff, calling the situation “a shambles”.
Chairman Mark Tucker tells the AGM that the clawback was lawful, not discriminationary, and was properly communicated.
Midland Clawback Campaigners don’t agree, and shout back at Tucker from the floor.
The Clawback campaign explain here that the policy is unfair because pensioners lose the same monetary amount, regardless on whether they’re on a large or small pension.
HSBC chair: Expect UK interest rate cut in June
The chair of HSBC has predicted that the Bank of England will cut interest rates in June, for the first time since early in the pandemic in 2020.
Speaking at HSBC’s annual general meeting in London today, Mark Tucker explains that inflation data is “key” to the global interest rate outlook.
He predicts that the BoE will lower interest rates by one and a half percentage points by the end of next year. That would lower Bank Rate to 3.75%, from 5.25% today.
Tucker says:
Central banks are closely and carefully watching the data and need to be confident that inflation will continue to head down to target on a sustainable basis before lowering rates.
Our economists continue to anticipate a gradual reduction in inflation with our global inflation forecasts at 5.8% in 2024 and 3.8% in 2025.
We expect the ECB and Bank of England to cut rates in June, cutting by 150bps by year-end 2025. We expect the Fed to cut in September, cutting by 100bps by year-end 2025.
The City money markets do not expect the BoE to cut as early as June, though – today, the first cut is only fully priced in for September, although there’s a 66% chance it could come in August.
Tucker adds that it is hard to achieve “relative certainty in the central banks’ decision-making process”, given that both growth and employment numbers are holding up and inflationary pressures are lingering.
As he puts it:
It may not be a steady path.
UK public service productivity in ‘pretty worrying’ fall
New experimental statistics show that UK public sector productivity dropped in the final quarter of last year, and is almost 7% below its pre-pandemic levels.
The Offiec for National Statistics has reported that public service productivity fell by 1% in October-December 2023 compared with July-September, the third quarterly decline in a row.
This left public sector productivity 2.3% lower than in the fourth quarter of 2022.
Annual estimates suggest that public service productivity showed no growth (0.0%) in 2023, following a partial “bounce-back” of 6.5% in 2021 and 3.0% in 2022 following the pandemic in 2020, the ONS reports.
Productivity rises if output increases faster than inputs, and vice versa.
The ONS reports that inputs (such as wages) rose by 1.2% in the quarter, while output only rise by 0.1%
Inputs increased on the quarter for all service areas, however, output fell for healthcare and education, the two largest areas by expenditure share, the ONS adds.
Paul Johnson, director of the IFS, says the “huge drop” in productivity since the pandemic is “pretty worrying”, and shows public services are struggling.
Over in Oslo, Norway’s central bank has left interest rates unchanged.
The Norges Bank decided to maintain its policy rate at 4.5%, and predicted that rates will “likely be kept at that level for some time ahead”.