If the jobs report is anything to go by then the US economy bounced back strongly in May and the Fed’s suspicions that the weakness in the early part of year was transitory is justified. It is still far too early to get carried away as there is plenty of May data to come but this is a fantastic start. Job creation was well above expectations at 280,000, while participation in the labour market ticked up to 62.9%. While this is good news, the what makes this a great report is that average earnings rose by 0.3%, the second time we’ve seen this in three months.
While we have seen this feed through into spending yet, the summer is approaching and consumers are feeling flush. The economy is now primed for a consumer driven recovery and with disposable income boosted further by lower oil prices, it could very strong indeed. All we’re missing now is that spending and once we get it, I don’t think the Fed will hold back in pulling the trigger. They are clearly keen to return rates to normalisation and with the economy running at what it deems to be full employment and higher inflation possibly on the horizon, it may soon be able to justify it.
This report alone won’t be enough to convince the Fed but it does offer hope that the economy only stalled in the first quarter. Had we seen a poor report, I think it may have closed the door on a rate hike this year. Instead, the door is well and truly open and September is back on the table.
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