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US jobs growth in June beats expectations
Job growth in the US slowed last month, but the economy still added more jobs than anticipated, according to official data.
Employers created 206,000 jobs in June, and the job count for May was revised down from 272,000 to 218,000. The US unemployment rate inched up to 4.1%, and wage growth slowed to its lowest rate in three years.
Analysts believe these figures could prompt the Federal Reserve to consider lowering interest rates later this year. Economists had predicted that 190,000 jobs would be added in June. Interest rates remained steady at 5.25%-5.5% in June, a range maintained since July of the previous year. Financial markets are predicting a 72% chance of a rate cut at the Fed's September meeting and an increasing likelihood of a second cut in December.
In June, the Fed abandoned its March forecast of a three-quarters of a percentage point decrease in interest rates for the year, which would have entailed cuts starting in the summer and continuing up to the US presidential election on November 5.
Instead, due to unexpectedly persistent price increases and a strong job market, the Fed now anticipates a single quarter-point cut this year.
Central banks globally often follow the Fed's lead in adjusting rates. However, Bank of England Governor Andrew Bailey remarked in May that results may follow the latest observations.
UK economy grows more than expected in early stages of 2024
The UK economy grew more than initially estimated in the first quarter of 2024 as the country emerged from recession, according to revised figures from the Office for National Statistics (ONS).
Between January and March, the economy expanded by 0.7%, an improvement from the initially reported 0.6% growth.
Economic performance has been a focal point in the general election campaign, given the sluggish growth in recent years. Steady GDP growth is widely desired by economists, politicians, and businesses as it typically signals increased consumer spending, job creation, higher tax revenues, and better wage increases.
The original growth estimate for the first quarter exceeded economists' expectations. The ONS highlighted that the services sector, including businesses like hairdressers, banks, and hospitality, significantly contributed to the upward revision. However, manufacturing growth was adjusted downward due to the collection of more data.
With this upward revision, the UK became the fastest-growing economy in the G7 group of advanced economies for the first three months of the year. Paul Dales, chief UK economist at Capital Economics, attributed the higher GDP growth mainly to increased consumer spending. The ONS noted that spending on recreation, culture, housing, and food rose, and household disposable incomes continued to grow as workers secured wage increases.
As a result, household saving rates increased from 10.2% at the end of the previous year to 11.1%, the highest rate since mid-2021 during the COVID-19 pandemic.
Despite emerging from the recession of late 2023, many households might still feel financial strain due to rising prices. Interest rates are currently at a 16-year high of 5.25%, increasing borrowing costs for mortgages and loans, though savers benefit from better returns.
However, the economy showed no growth in April, partly due to wet weather affecting consumer activity and construction. The Bank of England has hinted at a potential interest rate cut in August, which would be the first reduction in borrowing costs in over four years.
Eurozone inflation eases but ECB likely to keep interest rates on hold
Inflation in the eurozone slowed to 2.5% in June, despite ongoing price pressures in the service sector.
This keeps the European Central Bank (ECB) on track to maintain interest rates this month. The annual inflation rate for consumer prices across the 20-country bloc eased from 2.6% in May, aligning with market expectations, according to a flash estimate from Eurostat, the EU statistical agency.
Core inflation, which excludes food, energy, alcohol, and tobacco, remained steady at 2.9%, slightly higher than economists predicted, indicating persistent inflationary pressures.
Eurostat's flash estimate for June showed that services experienced the highest annual inflation rate at 4.1%, unchanged from May. Price growth for food, alcohol, and tobacco slowed from 2.6% in May to 2.5%.
Last month, the ECB reduced its main deposit rate to 3.75% from a record high of 4%, outpacing the US Federal Reserve and the Bank of England, which have not yet cut interest rates.
This was the first reduction in the main eurozone interest rate in nearly five years. However, ECB President Christine Lagarde stated on Monday that further interest rate cuts are not urgently needed, citing a strong labour market and resilient wage growth.
These developments come as European stocks dropped to a two-week low on Tuesday, amid concerns over the French election outcome and increased economic uncertainty across the eurozone.
