US Non-Farm Payrolls Preview
James Chen, CMT May 5, 2016 10:30 AM
The US Labor Department’s Non-Farm Payrolls (NFP) report, due to be released this Friday morning, has long been used as a primary barometer of the overall employment situation in the US as well as a key input affecting the Federal Reserve’s policy decisions.
Since the fourth quarter of 2015, these employment numbers have shown consistent strength, significantly beating monthly expectations for most of the past six months, with the exception of January’s data. Since the Fed’s last rate hike in December, the strong labor market has remained the comparative bright spot in the US economy amid other economic data releases that have frequently disappointed expectations and pointed to a slowing of US economic growth.
This strength in the labor market was mentioned in last week’s FOMC statement, which provided a mixed assessment of US economic conditions, highlighting significant improvements in labor but a slowdown in other economic growth indications. Despite acknowledgement of this healthy employment situation, however, the Fed remained characteristically dovish and cautious, opting to keep interest rates unchanged, as expected, and providing little in the way of guidance as to the probability of further rate hikes this year. Once again, the FOMC kept with its old refrain that its policy outlook will continue to be dependent upon economic data going forward, and that its pace of tightening would likely be gradual.
If even the succession of strong employment data in recent months has been insufficient in swaying the Fed any further towards the hawkish side, the potential impact on the US dollar of a better-than-expected NFP this Friday is unlikely to be extensive or sustained. In contrast, a worse-than-expected reading could prompt a significant extension of the dollar’s recent pullback, as it would likely help reinforce the Fed’s already-dovish leanings.
Consensus expectations for this Friday’s NFP, which will be accompanied by key related data on the unemployment rate and average hourly earnings, have recently vacillated around 200,000 jobs added for the month of April. However, Wednesday’s ADP employment report, which often serves as somewhat of a limited leading indicator for NFP Fridays, fell far short of expectations at 156,000 jobs added in April against prior forecasts of around 200,000, representing a sharp drop from the revised 194,000 in the previous month. With this substantial disappointment from the ADP data, prospects could very likely have fallen for the NFP.
Despite this, other recent employment-related data for April have generally shown better-than-expected results, including numbers that have increased since the prior month for both manufacturing PMI employment (increase of 1.1 to 49.2) and non-manufacturing PMI employment (increase of 2.7 to 53.0), as well as generally healthy initial jobless claims that have fluctuated for the past four weeks not too far from their lowest levels in decades.
In light of these mixed data points, the actual NFP numbers on Friday could potentially fall within a loose range between the ADP’s neighborhood around 150,000 and consensus estimates of approximately 200,000, with a midpoint area falling around 175,000. Any substantial deviation from this general range could make a significant market impact, primarily on the US dollar. In particular, both EUR/USD and USD/JPY could make some substantial moves, as is often the case, depending on Friday’s actual reading and its monetary policy implications.
NFP Jobs Created and Potential USD Reaction:
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.