US employment growth moderates, buying the Fed and growth investors more time

The March non-farm payrolls release confirmed that employment in the United States continues to expand but at a more moderate pace over the past three months. The unemployment rate remained steady at 5.5% well below its peak of 10%. Despite the considerable drop in the unemployment rate, core inflation has decelerated and remains well below the US Federal Reserve’s 2% objective. The Phillips curve has flattened since the financial crisis, which confirms that inflation has become less responsive to changes in the unemployment rate. The performance of stocks around the taper ‘tantrum’ in May 2013 reveals just how sensitive premium rated growth stocks are to the future course of US monetary policy; the worst four performing stocks among the ASX200 were: CTD, DMP, IIN and REA reflecting their long duration attributes. Although discount rate shocks represent a key risk for growth investors, the recent moderation of US employment growth, still considerable slack in the US labour market, and low inflation should buy more time for the Fed and growth investors. (VIEW LINK)