US employment figures, at least a good Bush Adminstration record….

US employment points to steady growth

By Eoin Callan in Washington and Tony Tassell in London

Published: December 8 2006 14:15 | Last updated: December 8 2006 14:15

US
employers continued to add workers to their payrolls at a strong pace
last month pointing to continued economic growth, the latest figures
showed.

Businesses and government added 132,000 jobs to
payrolls last month, beating market expectations and prompting
investors to scale back their expectations of a rate cut next year.

The sharp rise will encourage the Federal Reserve to keep interest rates on hold when it meets next week.

The
strong job creation provides further weight for Fed’s forecast that the
US economy is retuning to a moderate rate of growth, despite a slowdown
in key sectors such as construction and manufacturing.

Drew
Matus, an economist at Lehman Brothers, said: “This is a very strong
report well above what the Fed believes to be the break-even rate of
job creation.”

The employment figures provided clear evidence
that the US economic growth is being led by service sector, which added
the bulk of jobs last month while payrolls were slashed by in
construction by 30,000 and by 15,000 in manufacturing.

The
overall rise in job creation means that when central bank governors
meet next week they are likely to again cite the risks of rising
inflation as the more pressing threat to the economy than a wider
slowdown.

However, a slight rise in the unemployment rate to
4.5 per cent from a five-year low of 4.4 per cent will ease Fed fears
about a tighter labour market fueling price rises.

The Fed has
been consistently predicting a so-called soft landing for the economy,
while currency and bond markets have tended to price in a harder
downturn that would prompt the central bank to cut rates in the first
half of next year.

US Treasuries on Friday weakened in reaction
to the data as investors scaled back their expectations of a rate cut
next year. The yield on the benchmark 10-year US note was trading 3.3
basis points higher at 4.526 per cent.

Action Economics said
futures markets were pricing in a 36 per cent chance of a cut in the
Fed funds rate in March, down from 50 per cent before the data.
However, they are still pricing in a quarter-point easing by the end of
June.

Copyright The Financial Times Limited 2006

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