Monthly Economic Review: U.S. Dollar

In today’s edition of my Monthly Economic Review, I’ve got a rundown of the latest economic numbers from the U.S. economy to help answer the latest question on every forex trader’s mind these days: Will the Dollar rally get back on track?!

Employment

The U.S. employment sector took a big hit in March when the net jobs added came in WAY below the market expectations at 126K vs. 245K forecast. One can argue that this shouldn’t be a surprise given another harsh and prolonged winter season across the U.S., but it is a bit of a shock since the Non-Farm Payrolls number has been killing it with a range of 200K – 300K net jobs added per month since last summer.

A couple of bright spots from the most recent NFP report include a tick higher in the average hourly wage number (0.3% vs. 0.1% previous) and the unemployment rate staying at 5.5% despite the drop, but we did see downward revisions to the previous month’s numbers and the labor participation rate declined once again to 62.7%, indicating more discouragement among able bodied workers.

Inflation

For those forex traders who have been living under a rock, slowing global inflation continues to be a drag on everyone since the fall of energy prices over the last year.  Although we have seen stabilization recently,  the outlook for price inflation is to remain low; this could continue to put pressure on average wages, or for some companies, lead to lower employment.  I’m sure we can all guess on what kind of effect that scenario has on consumer spending, right?

In the U.S., thanks to a stabilization and bounce energy prices, the consumer price index came back into positive territory to 0.2% m/m after three straight months of declines. On the other hand, producer prices continued to decrease faster than economists expect, with February declining by -0.5% in February over an expected rise of 0.3%.

Bottom line is that the U.S. still seems to be in an okay place (not heading into a deflation scenario), but U.S. businesses are likely to continue to feel the pain of falling prices, especially for the international companies if energy prices stay low and the U.S. dollar remains strong (a high currency valuation decreases international profits and demand).

GDP

The final fourth quarter 2014 U.S. GDP was revised lower to 2.2% versus the 2.4% growth expectations. Consumer spending was the bright spot thanks to falling energy prices, but the same falling prices and strong Greenback previously mentioned put pressure on corporate profits.

Economists have lowered their forecasts for Q1 2015 U.S. GDP, pointing to a falling trend in business metrics like industrial production, manufacturing (ISM manufacturing PMI dips to 51.5 vs. 52.9 previous), and durable goods orders (-1.4% vs. 2.0% previous). And consumer spending stability may likely remain dependent on whether or not the employment environment remains as strong as it has been over the last 10 months.

Overall, the data is looking a lot less strong this quarter than the last few quarters, which is likely why the FOMC included rhetoric in their last monetary policy statement that they can “be patient in beginning to normalize.” We’ll get more of their thoughts with the release of the FOMC meeting minutes later in the Wednesday U.S. trading session, but it looks like traders have already pushed back expectations of a U.S. rate hike in June to September.

Is this just the beginning of more weak data from the U.S., or is the recent dip in data a short term outlier in the longer-term U.S. recovery?