Sharp rise in US jobs sparks inflation fears: Bonds fall in nervous market

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The Independent Online
STRONG US employment figures for June, showing far greater creation of new jobs than expected, stirred new fears in financial markets yesterday that inflationary pressures may be building in an economy accelerating once again.

The latest Labor Department jobless report showed the overall unemployment rate held steady last month at 6 per cent.

But the closely watched figure for jobs created during June surged to 379,000, nearly double the prediction of most analysts and one of the biggest monthly jumps in recent years. The May payroll increase was also revised upwards, to 252,000.

The improvement was spread across the board. Temporary work expanded sharply, as did employment in the construction and service sectors - with the World Cup given as one of the reasons.

More significantly, manufacturing also put on 34,000 jobs.

But one figure that may help calm Wall Street was a drop in average hourly earnings, from dollars 11.09 to dollars 11.08, suggesting wage inflation is not yet posing a threat.

Even so, markets were initially rattled.

Stocks managed to reverse an early decline, but traders cut almost three-quarters of a point off the price of the benchmark 30-year bond, pushing up the yield to 7.70 per cent by closing from 7.60 per cent overnight.

The June payroll figures, although covering a five-week rather than the usual four-week period, are one of the strongest recent US indicators, suggesting the country is comfortably on course for 3 per cent or more GDP growth in 1994.

Although the Federal Reserve chose not to push up short-term interest rates at the policy-making Open Market Committee this week, most economists believe the central bank will do so soon.

Long-term rates, which largely dictate mortgage and corporate borrowing and investment trends, are already climbing steeply.

Yesterday's yield on the 30-year bond is almost 2 per cent above its low of last October.