NFP Recap: Jobs and wage growth disappoint, but Fed still on track
James Chen, CMT May 4, 2018 3:50 PM
Most aspects of the US jobs data released on Friday morning disappointed expectations, but were unlikely disappointing enough to sway the Federal Reserve from its firm track towards higher interest rates through 2018 and beyond. The knee-jerk market reactions to the lower-than-expected job creation and wage growth figures were a drop in the US dollar and a pop in gold. As the dust settled, however, the recently rallying dollar began to rise once again, and gold continued to trade under pressure.
The US Labor Department reported that 164,000 new non-farm jobs were added to the US economy in April, against previous expectations of 190,000. Though on first glance this was a significant disappointment, a bright spot could be found in the revisions of previous months’ data. March was revised up from 103,000 to 135,000, while February was revised down from 326,000 to 324,000. On a net basis, those revisions added 30,000 jobs to the numbers previously reported.
Wage growth, however, was the major disappointment. April’s average hourly earnings came in at a 0.1% increase month-over-month against prior consensus expectations of +0.2% (2.6% year-over-year versus the previous 2.7%). Additionally, average hourly earnings for March were revised down to +0.2% from the originally reported +0.3%. The expectation of rising inflation has been a key theme in recent months, and wage growth has been a substantial market focus. Friday’s lower-than-expected wage numbers may have placed somewhat of a damper on those inflation expectations, and government bond yields initially fell sharply as a result.
The unemployment rate, on first glance, was better than expected at 3.9% against prior expectations of 4.0% and after the previous month’s 4.1%. While this marks a new trough in the unemployment rate, the low was aided by a drop in the workforce participation rate.
The initial market reactions immediately after the release were as might have been expected given the disappointing data. The dollar index and bond yields spiked down, gold popped, and US equity futures gained a bit of relief on the lower wage growth numbers. As the morning wore on, however, the dollar reversed its initial losses, gold came under some pressure again, and bond yields began to recover. These market turns are likely due to the perception that the employment numbers, though worse than expected overall, were not likely enough of a disappointment to keep the Fed from raising interest rates two, or possibly even three, more times this year.
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.