December 2012 NFP: What’s the Verdict?

Ladies and gentlemen, it seems that we’ve got mixed results from the latest U.S. nonfarm payrolls. Last Friday, the NFP reported that the U.S. economy added 155,000 jobs in December. The result was mostly in line with expectations as the market had initially projected that 150,000 jobs would be created.

But to those who had been led to expect a strong figure by the upbeat ADP report, the figure was discouraging. Ahead of the NFP release, the ADP raised expectations for strong employment data as it came in much better than expected. It printed an increase of 215,000 in jobs versus forecasts of 134,000.

Another not-so-good aspect of the NFP was that the actual figure was just below the monthly growth average in 2012 of 158,600. In addition, the public sector shed 13,000 jobs, highlighting the negative effects of cost cutting. All in all, the net effect of changes in the job market last month kept the unemployment rate at 7.8%, which is something that will likely keep the Fed on its toes.

On the bright side, average weekly hours and hourly earnings clocked respectable improvements. Average weekly hours rose 0.1% while hourly earnings jumped 0.3%, its largest increase in 2012.

The private sector also showed strength. It shouldered much of the load as it was entirely responsible for the jobs that were created last month. Of the 168,000 jobs added by the private sector, 25,000 were from the manufacturing industry, which is arguably the backbone of the U.S. economy. Also, the 146,000 NFP figure reported in November was revised upwards to reflect an increase of 161,000.

Overall, it would be wrong to say that the U.S. job market deteriorated last month, but at the same time, we can’t say it improved. It simply held steady.

EUR/USD 15-minute Chart

As for the market’s reaction… well, will you look at that! Just as our December 2012 NFP preview had predicted, EUR/USD ended up rising 50 pips within the first two hours of the release. However, it seems the results were ultimately dollar bearish, as the American currency sold off against all of its major counterparts, including other safe havens such as the Japanese yen and the Swiss franc.

What this suggests is that the markets have somewhat stopped freaking out about the Fed’s recent hints about ending quantitative easing this year. If you recall, sometime last week, the FOMC meeting minutes revealed that “several” members voted to halt asset purchases in 2013. This had led some to believe that the Fed had turned hawkish, and as a result, boosted the dollar against its higher-yielding counterparts.

But for now, it seems that we can put these worries to rest as there doesn’t seem to be any reason for the central bank to be extra hawkish at the moment. Let’s face it: it’s unlikely that the Fed will change its stance… not with the job market posting mediocre results like these!