Wall Street surges on economically benign employment data

Latest US employment figures yesterday boosted world equity markets, driving the Dow Jones Industrial Average to record highs as expectations of a US interest rate rise receded. The Dow ended at 9,736.08, up 268.68 points on the day, representing a gain of 2.84 percentage points.

Data from the Labour Department showed the US unemployment rate for February edging up slightly from 4.3 to 4.4 per cent. The figures fuelled expectations that the Federal Reserve would not move to raise interest rates to check any risk of overheating in the economy.

By early afternoon, the Dow was up 186.9 at 9,654.3, compared with its all-time closing high of 9,643.32 set on January 8th, and it later broke through the 9,700 barrier for the first time.

The benchmark 30 year Treasury bond gained nearly two points to 95 7/32, sending the yield down to 5.580 per cent.

European share and bond markets were lifted by Wall Street's reaction, having been weighed down by the recent rise in Treasury bond yields.

The British gilt and German bund markets each rose by more than a point, while in the equity markets the trans-national FTSE Eurotop 300 index gained 2.3 per cent. The Paris and Frankfurt bourses each gained 2.5 per cent and in London the FTSE 100 index finished 104.1 points ahead at 6,205.5. In Dublin the ISEQ index of Irish shares rose by 1.6 per cent to 5,389.06 and is now approaching its high of 5,471 recorded last April. The US Labour Department figures showed the manufacturing sector shed 50,000 jobs in February. However, the US economy as a whole added 275,000 jobs, mostly in the construction and services sectors. While strong, this increase was lower than market expectations.

Wage pressures were unexpectedly tame, with hourly earnings rising by only 0.1 per cent during the month and 3.6 per cent over the past year.

In its Economic Data Bulletin, Morgan Stanley Dean Witter said the moderation in wages will "temper the Fed's enthusiasm for any near term rate hike".

The US unemployment rate has been at or below 4.5 per cent since April 1998, the longest stretch of low rates in three decades.

Despite tight labour markets in many regions, wage pressures have eased. The year-on-year rise fell to 3.6 per cent, well below the 4.4 per cent of the previous year.

Wage restraint has been aided by losses in factory employment, down by 337,000 jobs since last March. Employment in the clothing industry fell by 15,000 last month, while the motor vehicle industry lost 8,000 jobs; aircraft, 6,000; fabricated metals, 6,000 and industrial machinery 7,000.

"Industrial exports have been hurt by lack of demand worldwide, while in commodity-based sectors, the worst culprit has been declining prices," said Mr Gordon Richards of the National Association of Manufacturers.

The economy - and the mild weather - added 72,000 construction jobs last month and retail payrolls jumped by 123,000 as shoppers kept the tills busy.

The "miracle" economy owes much to low interest rates and the boost they give to housing. US builders completed a seasonally-adjusted 1.66 million homes and apartments in January, the strongest rate since July 1987.

Meanwhile, the euro remained weak. The US dollar to euro exchange rate had stalled for most of the day, but after New York opened the harassed European unit retreated again, sinking to below $1.08 and nearly to its record low of $1.0787. In early New York trade the euro had recovered somewhat to around 1.0840.

Analysts said the dollar initially dipped on the US data as it reduced the arguments for higher interest rates, but a rally in the T-bond market soon reversed the dollar decline.