Non-Farm Payrolls: Joy or Heartbreak?

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!

  • Darkdoji

    Mums the word on age – but witness the illogic of it, Trichet’s comments reflect a need to keep yields down given how much all those peripherals have to cough up periodically and was also honest in part – there are downside risks to a rate hike just now. VIX is down and TNX is up, 30 days fed funds rate futures is up and COT speculative positioning supports all of these. Going by the penultimate indicator, traders are betting the fed will not be going on a hike until Q4. All this means Egypt (wild card or not) is not on the radar just yet and it is “risk on”(in the foreseeable future – meaning until say next Monday). Yet the Euro got clobbered today on account (I gather)of Trichet making no hard promises, which to my mind should not be the case since we know what we want or are traders always confused?. That being so, it seems to me, if the NFP were to misstep then the buck could get clobbered too – in which case we will have a range on the daily chart reflecting this back and forth and particularly the clear impatience traders are exhibiting just now with regard to wanting clear signals for where to put their money long term. If as I suspect, Ben Bernanke plays it honestly tonight and states that in fact he thinks QE3 is a next step (given what you said about the growth rate and jobs – which he is well aware of and has been speaking to) then what??? I NEED FURTHER SCHOOLING PLEASE TO MAKE SENSE OF IT ALL. Logically, it is right to think the EMU will be hiking rates before the fed and traders know it and already put money on it in the futures market, so why won’t they trade it and allow me make some pips!!!

  • Darkdoji

    Mums the word on age – but witness the illogic of it, Trichet’s comments reflect a need to keep yields down given how much all those peripherals have to cough up periodically and was also honest in part – there are downside risks to a rate hike just now. VIX is down and TNX is up, 30 days fed funds rate futures is up and COT speculative positioning supports all of these. Going by the penultimate indicator, traders are betting the fed will not be going on a hike until Q4. All this means Egypt (wild card or not) is not on the radar just yet and it is “risk on”(in the foreseeable future – meaning until say next Monday). Yet the Euro got clobbered today on account (I gather)of Trichet making no hard promises, which to my mind should not be the case since we know what we want or are traders always confused?. That being so, it seems to me, if the NFP were to misstep then the buck could get clobbered too – in which case we will have a range on the daily chart reflecting this back and forth and particularly the clear impatience traders are exhibiting just now with regard to wanting clear signals for where to put their money long term. If as I suspect, Ben Bernanke plays it honestly tonight and states that in fact he thinks QE3 is a next step (given what you said about the growth rate and jobs – which he is well aware of and has been speaking to) then what??? I NEED FURTHER SCHOOLING PLEASE TO MAKE SENSE OF IT ALL. Logically, it is right to think the EMU will be hiking rates before the fed and traders know it and already put money on it in the futures market, so why won’t they trade it and allow me make some pips!!!