Early Christmas for the U.S. Labor Market?

The non-farm employment change, one of the most-watched reports in the forex market, was released last Friday. It showed that 146,000 net jobs were added for the month of November, which was a huge surprise for market participants as they were only expecting an 89,000 net increase. It was also much better than October’s downwardly revised 139,000.

The unemployment rate section of the report was mixed though. Even though joblessness was reported to have fallen to its lowest level in three whole years to 7.7% from 7.9%, the participation rate–or the amount of people actively looking for jobs–has also declined. According to surveyed workers, they didn’t look for jobs because they were still trying to fix the damages caused by Hurricane Sandy.

The jump in jobs came at the heels of Hurricane Sandy, which indicates that, so far, it has had a minimal effect on the employment situation. Prior the release of the report, many economists had predicted that tens of thousands of jobs would be lost.

It’s important to note that the job growth in November was concentrated in the service industry, specifically the retail and health care sectors. In fact, the retail sector alone added more than 50,000 jobs. The production and construction sectors unfortunately lagged behind. Construction employment decreased by 20,000 while the manufacturing sector shed 7,000 jobs.

U.S. Dollar Index

Immediately after the release of the NFP results, the dollar zoomed higher, with the USDX briefly hitting as high as 81.13.

However, the sentiment was short-lived, as the pair soon dropped throughout the rest of the New York session. By the end of the day, the U.S. Dollar Index was trading below 80.90, lower than where it had been before the NFP report!

What the heck?! What gives?

It seems as if traders realized that while the figures were better than expected, it basically came in line with the two-year moving average of 150,000 jobs added per month. Furthermore, the previous month’s release was revised down from 171,000 to just 138,000. As you can see, it wasn’t all that positive.

With our buddies over at the Federal Reserve set to make its monetary policy decisions next week, there was some speculation that the central bank may back off its pro-easing stance and let Operation Twist expire later this year.

However, I just don’t quite see that happening.

Keep in mind that over the past year, the Fed has changed its focus from inflation to employment. With the labor market still laboring to gain enough momentum to replace all the jobs lost over the past four years,

I just don’t see the Ben Bernanke releasing the Fed’s foot off the pedal. Instead, we can probably expect policymakers to replace Operation Twist with another form of bond-buying, in order to give the economy enough juice.

Looking ahead, it looks as if the dollar is standing on thin ice. It may only be a matter of time before the combination of loose monetary policy and fiscal cliff fears could really send the Greenback on a tailspin.


  • Pedro Pereira

    If the US jobs will rise in 2013, it will be in a very small change form the current NFE in my opinion. I think it will mostly stagnate rather than rise.