Friday 05 July 2019 2:51 pm | Updated: Friday 05 July 2019 2:55 pm

Fed rate cuts in question as US job gains defy expectations

US June non-farm payroll job gains defy economists’ expectations — SEYMOUR, CT - MAY 19: Alan Garceau, an employee at Slickbar Products, a company that makes oil booms and other products designed to clean up oil spills, manufactures an oil boom on May 19, 2010 in Seymour, Connecticut. Slickbar Products, housed in a 19th century former paper warehouse, has been working two shifts to meet the needs of emergency workers attempting to contain the oil spill in the Gulf of Mexico. The company can make up to 5,000 feet of oil containment booms per week and has already shipped over 14,000 feet to the Gulf and plans on sending another 40,000. Slickbar, which is part of Finland's Lamor Group, produced the first oil boom system in 1960 and claims to be the oldest maker of oil spill response materials in the country. (Photo by Spencer Platt/Getty Images)

The US economy defied expectations and added 224,000 jobs in June, according to official figures, after adding just 75,000 in May.

The rise in the non-farm payroll was significantly higher than the 160,000 figure economists had predicted. But the unemployment rate ticked up 0.1 percentage points to 3.7 per cent, the official data showed.

The strong employment data comes as the US Federal Reserve gears up to cut interest rates this month. Before the figures were released, traders thought a cut in July was almost certain.

But Erik Norland, senior economist at CME Group, said the non-farm payroll report “creates a bit of a conundrum for the Fed”.

He said a growing jobs market “might reinforce the reluctance of certain [Federal Open Market Committee] members regarding a possible rate cut”.

Both the dollar and US bond yields, which move inversely to prices, have risen as the job data has made markets less certain about the Fed cutting rates. Higher interest rates cause more investment in dollar-denominated assets and bond buyers to demand higher returns.

The US economy has been giving mixed signals recently, but the Fed has pointed to the US’s trade wars as one reason to ease interest rates.

Employment growth has averaged 172,000 per month so far in 2019, compared with an average monthly of 223,000 in 2018. This puts June’s figures well above the average for 2019.

Andrew Hunter, senior US economist at Capital Economics, said he still expected “the weakening economy to prompt the Fed to loosen policy [but] the first rate cut will probably be delayed until September”.

Today’s data showed a notable number of jobs were added in the professional and business services, health care, and transportation and warehousing sectors, the Bureau said.

The US non-farm payroll data is closely watched as a trusted indicator of the strength of the economy, but it is notoriously liable to revisions due to more information coming in at a later date.

Richard Flynn, UK managing director at Charles Schwab, said: “Economic data has yet to reflect a significant impact from trade concerns, but that’s unlikely to last if the stalemate drags on.”