US jobs rise fails to calm markets

THE prospect of a hike in US interest rates this month is still on the cards despite disappointing jobs figures from the world’s biggest economy.

The anxiously-awaited employment figures showed 173,000 jobs were created across the US last month – falling way short of the 217,000 experts had predicted.

The Non-Farm Payroll data from the US Labor Department was seized on by some economists as a sign that the US recovery is running out of steam, as the economy created an average of 211,000 jobs a month for the previous quarter.

The US Federal Reserve – whose Open Markets Committee next meets on September 16 and 17 – is less likely to increase rates if the economy is showing signs of weakness.

But other economists pointed to the fall in unemployment and surge in wages, which they said could persuade officials at the central bank to pull the trigger this month.

This would increase the likelihood of the Bank of England raising rates in the UK sooner rather than later as it tends to follow in the US central bank’s footsteps.

Unemployment in the US fell to a seven year low of 5.1pc – down from 5.3pc, while average hourly earnings increased by a more robust 0.3pc. This is an improvement on the 0.2pc rise registered in July.

For those scouring the figures for clues, the US Fed raised interest rates the last time unemployment fell to 5.1pc in May 2005. The central bank also stressed that the figures are likely to be revised upwards. It has kept rates at near zero since December 2008 as part of its effort to spur the recovery from the financial crisis.

Paul Ashworth, chief US economist at Capital Economics said a rate rise this month hangs in the balance. He said: ‘As far as we’re concerned, the September meeting is a 50-50 toss-up. Even if the Fed doesn’t hike rates in September, it won’t leave rates at near-zero for much longer.’

There had been growing speculation that US Fed chairman Janet Yellen was keen to increase rates this month as the economy has been steadily improving.

But last month’s rout on world stock markets – triggered when Chinese shares fell dramatically – has prompted markets to speculate that Yellen and her colleagues will hold fire.

Investors believed another set of robust US jobs figures may override these concerns and persuade the US Fed that the economy is strong enough to withstand a rate hike. David Buik from stockbroker Panmure Gordon claimed this is still a distinct possibility.

‘Today’s headline number for the most anticipated US Non-Farm Payroll data in living memory certainly did not deter market hawks from believing a 25 basis point hike on September 16 is still on the Fed’s agenda,’ he said.

Concerns about rising interest rates hit the FTSE 100 – down 151.18 points to 6042.92 – and the Dow Jones, which fell 298.14 points to 16,076.62.

But David Lamb, head of dealing at forex specialists FEXCO, suggested a rate hike will be delayed and the ‘chaos in China’ may be ‘eating into America’s once bullish levels of business confidence’.

Richard Hunter from Hargreaves Lansdown said: ‘A rate hike if looking more likely in December than September.’