NFP Preview: 1M jobs possible, but wage growth still stubbornly straggles
Matt Weller, CFA, CMT May 5, 2021 3:13 PM
Hopes are high heading into this week’s NFP Report, with potential to see over 1,000,000 net new jobs for the first time in eight months...
As we noted earlier this week, hopes are high heading into this week’s NFP Report, with potential to see over 1,000,000 net new jobs for the first time in eight months as the country gradually opens up amidst widespread vaccine distribution. In addition to the strong headline jobs reading, economists are also looking for the unemployment rate to tick down to 5.8% and average hourly earnings to come in flat month-over-month:
Are these expectations justified? We dive into the key leading indicators for Friday’s critical jobs report below!
As regular readers know, we focus on four historically reliable leading indicators to help handicap each month’s NFP report:
- The ISM Non-Manufacturing PMI Employment component printed at 58.8, up a point and a half from last month’s 57.2 reading.
- The ISM Manufacturing PMI Employment component printed at 55.1, down more than 4% from last month’s 59.6 reading.
- The ADP Employment report came in at 742K net new jobs, an improvement over last month’s upwardly-revised 565K reading, though still below the 872K reading expected.
- Finally, the 4-week moving average of initial unemployment claims fell to 612K, down sharply from 719k last month.
As we’ve noted repeatedly over the last few months, traders should take any forward-looking economic estimates with a massive grain of salt given the truly unparalleled global economic disruption as a result of COVID-19’s spread. That said, weighing the data and our internal models, the leading indicators point to a slightly worse-than-expected reading from the April NFP report, with headline job growth potentially coming in somewhere in the 800k-900k range, albeit with a bigger band of uncertainty than ever given the current state of affairs.
Regardless, the month-to-month fluctuations in this report are notoriously difficult to predict, so we wouldn’t put too much stock into any forecasts (including ours). As always, the other aspects of the release, prominently including the closely-watched average hourly earnings figure, will likely be just as important as the headline figure itself.
Potential NFP market reaction
The US dollar gave back most of March’s gains through the month of April, with most major currencies gaining 200-300 pips against the world’s reserve currency last month. With the greenback getting off to a better start to the month of May, the NFP report could set the tone for the remainder of the month.
After the sharp selloff in April, the nascent US dollar rally could extend further if we see a strong US jobs report. In that scenario, readers may want to look at USD/JPY as a potential long candidate, with room for the pair to rally back toward previous highs in the mid-110.00s after retracing 38.2% of its Q1 rally last month.
On the other hand, a weaker-than-anticipated jobs report could create a sell opportunity in USD/CAD (pending the simultaneous release of the Canadian jobs report) if it can break below multi-year lows near 1.2250.
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
- Open a Forex.com account, or log-in if you’re already a customer.
- Search for the pair you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels.
- Place the trade.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. 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 or CFD contract. 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. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. 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.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.