May US jobs re­port has some­thing for ev­ery­one

The Star Early Edition - - NEWS - Helmo Preuss

ALTHOUGH the May US em­ploy­ment re­port came in below ex­pec­ta­tions of a 180 000 gain for non­farm pay­rolls at only 138 000, the fact that both the cap­i­tal and eq­uity mar­kets ral­lied after the data was re­leased shows that there was some­thing in the re­port that sat­is­fied both bond and stock bulls.

This is im­por­tant for South Africa as the rally in US fi­nan­cial mar­kets means that more money will be seek­ing a home in emerg­ing mar­kets.

This is one of the fac­tors why the rand re­mains strong, de­spite the rat­ings down­grade in April. This in turn re­sults in lower in­fla­tion as a strong rand keeps a lid on fuel prices and helps with low costs of im­ported goods. That means for in­stance that the June Gaut­eng re­tail petrol price is back to where it was in March.

The US cap­i­tal mar­ket ral­lied as the May data showed that non-farm pay­roll growth was not so strong that the US cen­tral bank would be forced to raise in­ter­est rates dra­mat­i­cally.

The eas­ing in the US un­em­ploy­ment rate to a pre­global fi­nan­cial cri­sis low of 4.3 per­cent from 4.4 per­cent in April gave sup­port to eq­uity mar­kets, as it showed that the US econ­omy was near full em­ploy­ment, which should sup­port con­sumer spend­ing.

Longer term there are, how­ever, con­cerns as the US eq­uity mar­ket is over­val­ued based on con­ven­tional yard­sticks such as price to earn­ings ra­tio or price to book ra­tios, while the tax pro­pos­als put for­ward by Pres­i­dent Don­ald Trump would see a large rise in the US fis­cal deficit, which would im­ply a rise in cap­i­tal mar­ket yields.

If the US eq­uity mar­ket cor­rects, then other risk as­sets such as emerg­ing mar­ket as­sets could see a sell-off, while if US cap­i­tal mar­ket yields rise, then that makes emerg­ing mar­ket yields less at­trac­tive.

In terms of the US job fig­ures, the quan­tity and qual­ity of jobs is de­te­ri­o­rat­ing. When the US econ­omy is ex­pand­ing, then the re­vi­sions to the pre­vi­ous month’s total tends to be up­wards. Con­versely, if the US econ­omy is slow­ing, then the prior month sees a down­ward cor­rec­tion.

The high-pay­ing man­u­fac­tur­ing jobs are re­placed with low-pay­ing hos­pi­tal­ity ser­vice jobs. The lead­ing cat­e­gory of job cre­ation in May’s total was 38 000 new jobs in bars and restau­rants, which is amongst the low­est-paid job cat­e­gories.

PHOTO: BLOOMBERG

A rep­re­sen­ta­tive, left, ad­vises a job seeker in Peo­ria, Ari­zona. US em­ploy­ment showed a gain of 180 000 for May.

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