The US economy continues to produce more jobs despite being close to full employment. The US unemployment rate has remained near 3.5% since September 2019 and nearly 1.5 million positions have been created over the past year. The latest employment report indicates the US economy was still producing jobs in February but expectations of further US employment growth have dimmed recently.
According to the US Bureau of Labor Statistics, the US economy created an additional 273,000 jobs in the non-farm sector in February, coincidentally the same number as in January’s revised increase and more than the 195,000 increase which had been expected. Employment figures for November and January were revised up by a total of 85,000.
February’s unemployment rate ticked down from January’s rate of 3.6% to 3.5%. The total number of unemployed shrank by 105,000 to 5.787 million while the total number of people who are either employed or looking for work decreased by 60,000 to 164.546 million. The fall in the number of people in the labour force was not enough to alter the participation rate from 63.4%.
ANZ economist Hayden Dimes said the report was ignored as investors focussed on the likely fallout of more coronavirus infections in the US.
US Treasury yields fell heavily as investors fled equity markets and sought the safety of government bonds. By the close of business, the US Treasury 2-year bond yield had lost 12bps to 0.39%, the 10-year yield had dropped by 20bps to 0.57% and the 30-year Treasury yield plunged by 27bps to 1.02%.
In terms of likely US monetary policy, according to federal funds futures contracts at least another 50bps reduction is expected at the next FOMC meeting, coming on top of the emergency cut made on Tuesday. The implied likelihood of a 50bps cut at the FOMC’s March meeting increased from 51% to 72% while the likelihood of a 75bps reduction increased from zero to 28%.