Wage pressure raises fears of rise in US interest rates
Saturday 05 June 1999
The jobless figures were inconclusive about the direction of the US economy, but provided evidence of tightening pressure on wages. The number of people employed rose slowly, with non-farm payrolls increasing by a meagre 11,000 in May. That was much slower than the 343,000 rise in April, which had been revised upwards by more than 100,000.
But the unemployment rate fell back to 4.2 per cent, a historic low, stirring concern that the jobs market overall was tightening. Average hourly earnings showed a strong increase, up by 5 cents to $13.19.
The financial markets are more concerned about the prospect of a rise in interest rates than about any firm trend in the jobs market itself.
The Federal Reserve indicated at its last meeting that its bias was towards a tightening in interest rates, although it saw no reason as yet to move. The Fed meets again at the end of this month and markets are nervous that it will make a pre-emptive move against inflation.
Although the US manufacturing sector is still experiencing some problems, partly caused by weakness in overseas markets and the strong dollar, the service sector is racing ahead. Figures for consumer and producer inflation next week will give the markets more to chew over.
The market was also more jumpy over the outlook for interest rates after Alice Rivlin, the deputy chairman of the Fed, resigned on Thursday. Although not a pivotal policy job, Ms Rivlin was regarded as an inflation dove. Speculation is building about her replacement, with William McDonough, head of the New York Fed, one prominent candidate.
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