Lift-off countdown

US jobs point to Fed's sweet spot

Some 280,000 new positions were created in May. If this level of hiring keeps up and participation holds steady, the unemployment rate would fall below 5 per cent by year's end. That'd beat the central bank's projected range, and is making it harder to delay action.

Almost every sector of the economy added workers last month, with the notable exception of mining. The jobless rate ticked up less than a tenth of a percentage point, to 5.5 per cent, as slightly more Americans entered the workforce. Wages also inched up a bit, now showing 2.3 per cent growth from a year ago. These are all positive, if incremental, signs.

With the labour market at least temporarily back on track after a worrisome March, investors can reasonably revisit the employment side of the central bank's dual mandate. The numbers make it harder to see how the Fed could avoid changing its policy.

Most members of the group that dictates monetary policy expect a rate hike this year. They project the unemployment rate to be between 5 per cent and 5.2 per cent in the fourth quarter.

Even modest job creation should do the trick, according to Breakingviews calculations. If the population grows this year as it did last year, and labour participation holds at 62.9 per cent - within the tight constraints into which it has settled over the past year - then the Federal Open Market Committee should be satisfied. About 198,000 new workers a month would boost employment enough to cut the jobless rate to 5.2 per cent, while 243,000 would get it to 5 per cent.

May was ahead of both those projections. In fact, if this pace can be sustained, the unemployment rate would fall to 4.8 per cent by the end of the year, dipping into what economists typically consider full employment on a theoretical basis. At that point, only lower inflation than expected presumably would prevent higher interest rates. For now, those figures are already in the Fed's comfort zone.