So much for the ADP report being a good indicator of non-farm payroll! After the ADP printed a nice figure earlier in the week, many expected we’d see a similar result on NFP Friday. However, the stars didn’t line up properly, and instead, the NFP shocked the markets with another downer!
As it turns out, June’s results were far worse than expected, as only 18,000 jobs were added to the economy. This was the complete opposite from what was expected, as the better-than-anticipated ADP results (157,000 vs. 67,000) prompted the markets to believe that the NFP report may actually print higher than the consensus figure of 97,000.
Digging deeper, I find that there was no silver lining in the dark cloud of last week’s employment data as the labor market was bad no matter how you look at it.
First, the previous month’s number was revised down from 54,000 to just 25,000. This marked the third consecutive month that we’ve seen a downward revision.
Second, with the government continuing its cost cutting measures (39,000 layoffs in June), it’s up to the private sector to pick up the slack.
But firms are hesitant to hire right now, as companies only hired 57,000 last month, way down from the impressive 241,000 hiring spree we saw back in April.
Third, both work week and hourly earnings dropped in June. Not only is the Average Joe making less in real (inflation-adjusted) terms, but he is making less in nominal terms as well!
What this means is that not only is the Average Joe earning less than he used to, he’s also getting less bang for his buck. Talk about a double whammy!
If the Fed was cautious about tightening its policy before, just think how much more hesitant it is now that it has seen two straight months of disappointing data! As they say, one month of bad employment data doesn’t make a trend, but two months is an entirely different story.
So what can we expect from the dollar?
Following the release of the ugly employment figures, the dollar sold off sharply against the Japanese yen, Swiss franc, and British pound. Over the coming weeks, I wouldn’t be surprised to see more of the same.
The dollar could come under more selling pressure over the next few weeks, especially if markets shift their attention towards interest rate differentials.
Right now, the only thing that’s clear is that among the safe havens, the franc and the yen appear to be the better bets. That being the case, I’d put my money on those two to continue posting gains against the dollar in the near future.