On Friday, the much-awaited U.S. non-farm payrolls will be released. It is expected that a net of 133,000 jobs was created in December on top of the 103,000 jobs added the previous month. However, the unemployment rate is also expected to climb to 9.5%.
If you’re wondering how the unemployment rate can increase while still adding jobs, then let me explain…
The thing about the labor force is that it tends to get larger over time. As the population grows, and as students graduate from school, more and more people try to find work. Sure, companies can continue hiring, but if they cannot keep up with the number of people entering the labor force, the unemployment rate will still rise.
The increase in the supply of jobs is just NOT ENOUGH to keep up with demand.
In order for economy to recover all the 8,400,000 jobs lost during the recession and keep up with the people entering the job market, it must show a much faster growth than what we have been seeing. The fact is, while the trend in the U.S. job market is improving, the pace is still too slow.
Good thing there are also promising reports. A few leading indicators have been easing gloom-and-doom economic sentiments in the U.S. lately. Leading indicators are economic reports that are used to predict the future, as opposed to reports that show past performances.
Take the Chicago PMI, for example. A reading of 50.0 and above for the survey on Chicago’s purchasing managers generally signals expansion in the manufacturing sector. A few days ago the survey produced a reading of 68.8 for January with the employment component showing huge leaps. This is not only higher than December’s 66.8 figure, but is also the fastest pace since July 1988. Heck, that was around the time my bro Bruce Willis was bringing out the big guns in Die Hard 1!
Don’t forget that the ISM manufacturing PMI report also clobbered market expectations! The data came with a reading of 60.8 for January, which is the fastest pace in more than six years. Booyeah! Like the Chicago PMI, a reading of 50.0 and above indicates industry growth.
Lastly, consumer reports have been suggesting good times ahead for the U.S. economy. The CB consumer confidence data rose to 60.6 in January, up from December’s 53.3 figure.
Then, the University of Michigan consumer sentiment was also recently revised from 72.7 to 74.2. Meanwhile, data on consumer income and spending have also been rocking the charts and indicating that they’re willing to spend more moolah on the economy.
As always, the U.S. jobs report has a huge potential for setting off fireworks in the market. But what’s extra special about this upcoming NFP is that it could determine what’s driving price action at this point.
I’m sure y’all know that the Greenback, by virtue of its safe-haven appeal, could rally whenever negative economic figures come out. In this case, if the NFP figure prints a downside surprise, traders could come scurrying to the dollar like it’s a warm shelter on a rainy day.
On the other hand, there’s also the chance that fundamentals could be the dominant theme in the markets, even for the Greenback. I could recall a few times in the recent past when the dollar rose on the heels of strong U.S. economic reports and, according to the Dollar Smile Theory in our awesome forex school, that’s usually the case when the markets are no longer so worried about an economic meltdown.
Still, as I mentioned in my article about the ongoing riots in Egypt, the possibility of a global oil crisis is just around the corner and this may be enough reason for traders to be risk sensitive. Either way, I’d stay tuned to the results of the NFP on Friday, ready to catch some pips!