Bears were cheered by the latest US labour market report, showing a jump in the unemployment rate to 5.5% in May. On closer inspection, however, much of the rise was due to an expansion of numbers seeking work, particularly among people aged 16-24. (The unemployment rate for this group jumped from 11.0% to 13.0%; some reversal is likely next month.)

Employment trends are more relevant for assessing economic growth. Two measures are reported – one based on payrolls and the other on a survey of households (from which the unemployment rate is derived). Payroll employment has been falling since December but the household survey measure has been broadly stable – see first chart. The rate of decline of payrolls has been lower than during the 2001 and prior recessions. Allowing for productivity growth of about 2% annualised, recent developments remain consistent with GDP expansion, albeit sluggish.

Export strength, particularly to the emerging world, continues to support the US economy – the export orders index in the ISM manufacturing survey hit a four-year high in May. The second chart shows industrial output growth in the “E7” major emerging economies together with a composite leading index based on OECD data. (The OECD does not publish a leading index for Taiwan so the national index has been used instead.) Output rose by an estimated 9% in the year to April, which compares with sub-1% growth in the G7. The leading index suggests a  further slowdown over coming months but remains notably stronger than during prior global economic downswings.

As discussed in the last post, inflationary pressures are forcing monetary policy tightening in emerging economies. However, interest rates are currently below a “neutral” level in many countries and in some cases attempts to tighten are being frustrated by an expansion of liquidity due to currency inflows. (China’s foreign exchange reserves rose by $78 billion in April alone.) Policy restriction will eventually lead to a significant slowdown in the emerging world but this is probably a story for 2009-2010 rather than this year.

The further surge in oil prices is casting a cloud over prospects but the evidence to date is that the US and global economies continue to hold up better than most economists expected.