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Research Note: December US Employment Report (NFP) Preview
Brian Dolan, Chief Currency Strategist
Jacob Oubina, Currency Strategist
Summary Outlook: At 0830ET/1330GMT on Friday, January 9, the US will report Dec. NFP changes and the unemployment rate, along with revisions to Nov. jobs data. We expect a worse-than-consensus jobs loss of -615K and an increase in the unemployment rate from 6.7% to 7.0%, which is the consensus estimate. Market expectations have been skewed lower (from -500K to -520K) since the alarming drop in the ADP national employment report on Wednesday (-693K) and the USD has also weakened. In this light, we think the biggest risk is for a better-than-expected NFP report, which may catch the market wrongly positioned and see an outsized USD rebound. However, in our primary view, the NFP loss will indeed be severe and we look for the USD to weaken in response. The real indication for the USD looking ahead will be to see if such losses are sustained through the end of the day, or whether recent ranges end up holding.
Market Reaction: Below are our expectations for the initial price reactions following the NFP release based on a range of outcomes. An unemployment rate higher than 7.0% should add to the USD downside in our estimates below.
| NFP range | USD/JPY | EUR/USD |
| >-450K | +200 pips | -150 pips |
| -450/-500K | +100 pips | -100 pips |
| -500/-550K | -75/100 pips | +70 pips |
| -550/-600K | -125 pips | +100 pips |
| -600/-650K | -175 pips | +150 pips |
| <-650K | -200 pips | +200 pips |
Economic Analysis: The market's expectation for a -520K decline in December nonfarm payrolls looks optimistic in our view. The steady climb in continuing and new jobless claims for the month, horrid purchasing managers' indexes, and a sharp downturn in the ADP employment report suggest a number closer -615K is likely in store. Continuing claims jumped to an average of 4.5 million in December, an increase of nearly 350K from the prior month. Meanwhile employment indexes in the ISM manufacturing and services surveys were a depressed 29.9 and 34.7, respectively. Both are well below the expansionary 50 level and suggest layoffs remain rampant. Finally, the ADP employment report showed a disastrous -693K decline in private payrolls for the month and if we factor a 20-40K job build in the government sector, we are still well below -600K here. That index has been recently modified and now has about a 93% correlation with nonfarm payrolls. Our NFP forecast clearly highlights what we believe to be substantial downside risk to tomorrow's number. Less dramatically, the unemployment rate looks like it will rise to 7.0% from 6.7%, which is in line with the market expectation.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
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