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World's biggest economy regaining vitality after weakest growth

June 03, 2007 00:00:00


WASHINGTON, June 2 (AFP): US employers added 157,000 jobs in May, the Labour Department said Friday in a sign that the world's biggest economy is regaining vitality after the weakest growth in more than four years.

The unemployment rate held steady at 4.5 per cent, the agency said.

The report on nonfarm payrolls, seen as one of the best indicators of economic momentum, was well ahead of the Wall Street consensus forecast of 135,000 new jobs.

"Today's jobs report adds to the evidence that the economy is bouncing back in the second quarter," said economist Nigel Gault at the research firm Global Insight.

Gault said the report is consistent with economic growth in the range of 2.5 to 3.0 per cent after an "anemic" 0.6 per cent pace of the first quarter.

Stephen Gallagher, economist at Societe Generale, said the report along with other data suggests that the slowdown is over and that the Federal Reserve is unlikely to cut interest rate to stimulate activity.

"Healthy job growth will support consumption and the Fed is more likely to watch for inflation than slower growth," Gallagher said.

The Labour Department made some minor downward revisions to estimates for prior months. The number of jobs added in April was revised to 80,000 instead of 88,000 and in March to 175,000 from 177,000.

The service sector led gains in May with 176,000 new jobs, while the manufacturing sector had a net loss of 19,000 positions.

The data suggested that the economy is starting to rebound from its slowest pace of growth in over four years. Data Thursday showed first-quarter gross doemstic product (GDP) growth fell to a 0.6 per cent pace, but many analysts say that was the low point of the year.

The Federal Reserve, which has held interest rates steady for nearly a year, has said inflation remains a bigger concern than an economic downturn.

Avery Shenfeld, economist at CIBC World Markets, said the payrolls report appears to confirm the Fed's view that the economy is gathering pace.

"The trend year-to-date in job growth is 133,000 on average, and that's a pace that should neither threaten recession nor create too much inflation," Shenfeld said.

"If the Fed were trying to steer the economy, this is roughly the picture they would like to see."

Gary Thayer, chief economist at AG Edwards, said the economy is still working off a slump in housing and an inventory correction that will keep a lid on growth, and predicted a pickup to a growth pace of about 2.4 per cent.

"To get a good picture of the economy I think you have to average the second quarter and the first quarter," he said. "I don't think the economy is on a strong growth track."

The report suggested moderate inflation pressures. Average hourly wages rose 0.3 per cent in May to 17.30 dollars. Average hourly earnings have risen 3.8 per cent in the past year, slightly higher than the 3.7 per cent annual gain through April.

The average work week rose slightly to 33.9 hours in May from 33.8 in the prior month.

Robert MacIntosh, chief economist at Eaton Vance Corp., said the latest numbers, when smoothed out for volatility, show modest growth that will leave the Federal Reserve on the sidelines, probably through the end of the year.

"The Fed is probably ecstatic," he said. "They've achieved what they wanted" in terms of steering the economy toward a so-called soft landing.

He said an average of the past four months shows a pace of 125,000 jobs per month, roughly what is needed to absorb new labour market entrants without feeding inflation.

"I think we are exactly where the Fed would want to be."

But economist Peter Morici at the University of Maryland said the economy is stuck in a subpar period as the US loses jobs to low-wage countries such as China.

"This is hardly a stellar performance," Morici said.

"Thanks to a dollar overvalued against the Chinese yuan and many other Asian currencies, the economy continues to underperform its potential to grow about 3.5 per cent per year.

"Subpar growth is reflected in the poorer quality and number of jobs created for workers outside the high-flying health care, technology and finance sectors," Morici added.


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