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Greetings, forex friends! The first Friday of November is just around the corner, and you know what that means, right? That’s right! Another non-farm payrolls report (NFP) is coming out way this Friday at 12:30 pm GMT.

And if you’re planning to trade this top-tier event and need to get up to speed on what happened last time and what’s expected for the upcoming report, then today’s Forex Preview is just for you!

What happened last time?

  • Sept. non-farm payrolls: +134K vs. +185K expected
  • Aug. non-farm payrolls: upgraded from +201K to +270K
  • July non-farm payrolls: upgraded from +147K to +165K
  • Jobless rate: 3.7% vs. 3.8% expected, 3.9% previous
  • Labor force participation rate: steady at 62.7%
  • Sept. average hourly earnings m/m: +0.3% as expected
  • Aug. average hourly earnings m/m: downgraded from +0.4% to +0.3%

The September NFP report had a downside surprise for non-farm employment since the report revealed that the U.S. economy only generated 134K non-farm jobs (+185K previous). And consequently, the Greenback weakened across the board as a knee-jerk reaction to the disappointing revelation.

Overlay of USD Pairs: 15-Minute Forex Chart
Overlay of USD Pairs: 15-Minute Forex Chart

However, USD bulls quickly tried to bid the Greenback higher since the NFP report also revealed that non-farm employment change in August was revised higher from +201K to +270K.

Moreover, the reading for July was also upgraded from +147K to +165K. That’s a bonus 87K non-farm jobs from all those revisions.

Also, wage growth was within expectations since average hourly earnings grew by 0.3% month-on-month as expected.

Furthermore, the weaker-than-expected jobs growth in September was still relatively healthy since the jobless rate fell from 2.9% to 2.7%, which is the best reading since December 1969. Wowsers!

And it gets even better since the jobless rate fell even as the labor force participation rate held steady at 62.7%, which means that the U.S. economy was able to absorb the influx of new workers.

Better still, market analysts began pointing out that the disappointing reading for September NFP was not enough to crush expectations for a rate hike.

Even so, the September reading did fail to impress, so bears renewed their attack and sent USD pairs broadly lower again. However, bulls kept on fighting back. After all, the NFP report was still positive overall and rate hike expectations weren’t derailed.

What’s expected this time?

  • Non-farm payrolls: +195K expected vs. +134K previous
  • Jobless rate: steady at 3.7% expected
  • Average hourly earnings m/m: +0.2% expected vs. +0.3% previous

For the employment situation in October, the consensus is that around 195K non-farm jobs were created (+134K previous), so jobs growth is expected to accelerated.

However, wage growth is expected to come in at 0.2% month-on-month, which is a tick slower compared to the +0.3% that was recorded back in September.

Despite forecasts for a stronger rate of job creation, economists also forecast that the jobless rate won’t budge from 3.7%.

So, what do the leading labor indicators have to say?

We don’t really have a lot to work with. With that said…

  • Markit’s manufacturing PMI report found that “The latest rise in payroll numbers was the steepest since December 2017, which survey respondents attributed to capacity pressures and greater business investment spending at their plants.”
  • Markit’s service PMI report noted that “employment numbers increased at the slowest pace since June 2017. Some survey respondents noted that tight labor market conditions had held back their staff recruitment plans.”

What about historical tendencies? Do they offer additional insights?

Well, the consensus that jobs growth accelerated in October appears to be supported by historical data.

As to how economists fared with their guesstimates, there’s no consistent pattern that we can exploit, which is quite unfortunate.

However, the September reading does get revised higher (more often than not).

As for wage growth, well, there aren’t really any apparent historical trends for us to take advantage of.

In summary, most economists forecast that jobs growth accelerated in October while wage growth weakened.

This consensus view for stronger jobs growth is supported by historical data. As for wage growth, historical data don’t really offer any insights, which is rather unfortunate.

With that said, the available leading indicators are painting a mixed picture, so can’t really draw out any definite conclusions from them.

Looking at how economists have historically fared with their guesstimates also fail to yield any insight since there are no meaningful patterns to take advantage of.

Probability therefore seems roughly balanced for both jobs growth and wage growth.

Anyhow, that the Greenback usually (but not always) has a knee-jerk reaction to non-farm payrolls. However, make sure to keep an eye on wage growth as well since wage growth is usually the determining factor when it comes to follow-through buying or selling after the initial knee-jerk reaction.

And if news trading ain’t your thing or if high volatility makes you uncomfortable, then just remember that you always have the option to sit on the sidelines and wait for things to settle down.