NFP Recap: What You Need to Know About Today’s “Goldilocks” Report
July 2, 2020 9:01 AM
Despite today's strong report, there are reasons to be concerned about the prospects for the US economy...
While the monthly Non-Farm Payrolls report hasn’t been the most important economic release in recent months, it’s still a widely followed and respected gauge of the state of the US labor market (and by extension, the US consumer), so traders were waiting with bated breath for today’s release…
…and at first glance, the June NFP report was stronger than most traders expected:
- Headline job growth came in at +4.8M, well above expectations of a +3.0M rise.
- May’s job creation figures were revised up by nearly 200K, though many economists had anticipated a sharp negative revision.
- The unemployment rate came in at 11.1%, below both the 12.4% reading expected and last month’s 13.3% figure.
- Average hourly earnings fell by a worse-than-anticipated -1.2% m/m, likely on the back of previously laid off / furloughed workers in low-paid professions returning to work.
On balance, today’s report shows a labor market that continues to recover from the unprecedented disruption of a global pandemic and attendant shutdown in broad swathes of the economy.
Source: TradingView, GAIN Capital
That said, our goal is always to provide context for economic data, and when put into context, there are several reasons to be concerned about the prospects for the labor market moving forward. First of all, even after the strong jobs growth of the past two months, the US economy still has around 15M fewer jobs than it did in February.
Even more importantly, there’s a strong chance that this report will be as good as it gets in the near term. After all, the NFP survey was conducted in early- to mid-June, when almost every US state had lifted shelter-in-place orders, but before the virus started to resurge in earnest over the last 2-3 weeks. In other words, today’s jobs data almost perfectly captures a “goldilocks” window for the US economy, and labor market figures moving forward may show deterioration relative to a potential “high water mark” midway through last month.
So far, traders are viewing today’s jobs report as a positive, “risk on” sign for global markets. US index futures are poised to open more than +1% higher, matching the strength in European equities. The yield on the benchmark has already risen over 2bps to nearly 0.71%, with oil also gaining a little ground since the release. Meanwhile, the US dollar is ticking higher against its major rivals and gold is trading marginally lower as we go to press.
With a long holiday weekend looming stateside and the potential that this is “as good as it gets” for economic data over the foreseeable future, readers should keep a close eye on markets as we move through today’s session for any signs that the initial risk on reaction is fading.
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.