The weak employment report is primarily attributable to ongoing problems in construction and industry, as well as headcounts in the retail sales segment (which sends a signal about a possible decline in the main growth driver of US economic growth – consumer demand). 11,000 jobs were cut in the construction, 26,000 in the retail segment and 19,000 in the industry.
According to the previously voiced estimates of FRS spokespersons (Fed Chairman Ben Bernanke and FRB Chicago President Michael Moskow) in order to prevent unemployment growth, the economy needs to create 100,000-130,000 new jobs per month. Thus, the current data point to the likelihood of a further rise in the unemployment rate. Meanwhile, weaker growth of payrolls reduces risks of the inflationary pressure which the Fed currently views as a major problem. Combination of these factors increases hope on a gradual shift in the Fed’s policy to lowering the interest rate which stands at 5.25% since June 2006. The Fed’s regular meeting is slated for May 9. Although no one expects the policymakers to reduce the interest rate at this meeting, market participants are looking forward to hearing the statement with valuation of the balance of risks of a slowdown in the economy and inflation.
We view the interest rate cuts as unlikely, at least until August-September. However, any hints to this end would be a positive for the emerging markets and negative for the greenback.
0.553
1.6
