Private firms in the US hired at a very weak pace in April with an increase of only 119,000, according to the Automatic Data Processing Inc (ADP) report released on Wednesday. This report also showed that the number of new factory jobs came out below expectations. This gain disappointed as it was well below the Dow Jones Newswires economists' consensus of 175,000 jobs. In addition to this, the March data was revised down and showed an increase of only 201,000 compared to the 209,000 jobs reported previously. The ADP report records private-sector jobs only, while the Non-Farm Payrolls (NFP) - release by the US Bureau of Labor Statistics, due on Friday - includes government workers as well.
Following the ADP release, which is known to be a good indicator of the NFP figure as shown in the accompanying graph, market participants are turning progressively more bearish on the US labor market. Some investors are expecting only 125,000 new jobs in April, also highlighting that the effects of a warm winter, which helped employment late last year, will wane. Their forecast is way lower than the average 177,250 jobs created in the months December to March. A disappointing NFP figure will be an additional sign of a flagging economy, where inventories are piling up as final demand growth appears anemic.
Quantitative Easing 3 for Operation Twist
The main challenge for investors is gauging the probability of whether there will be a third round of quantitative easing (QE3) by the Federal Reserve.
Looking at the big picture; real income growth remains weak, partially because of high energy prices, consumer confidence appears reserved, and the latest positive retail sales data may be caused by favourable weather. Last Friday, the GDP release showed that the US economy had expanded at a 2.2% annualised in the first quarter, below the 2.5% anticipated by the Reuters economists’ poll.
Putting all of this information together, with a primarily focus on the chain of disappointing economic data releases, all of the signs are pointing towards QE3. ‘Operation Twist’, under which the Fed buys longer maturity Treasury notes and sells the same amount of shorter maturity securities aiming to lower interest rates, looks set to be continued in June when it will expire.
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