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What’s up, forex friends?

The September NFP report came out yesterday, and the Greenback tanked as a result.

Wait, what? What happened? Well, time to find out!

Another downside “surprise” for employment

  • September non-farm payrolls: 156K vs. 170K expected
  • August non-farm payrolls: upgraded from 151K to 167K
  • July non-farm payrolls: downgraded from 275 to 252K

I told y’all in my Forex Preview for the September NFP report that “The leading labor indicators seem to lean more towards a possible downside surprise.” In addition, I also pointed out that “like the August period, payroll numbers for the September period tend to be lower due to seasonal adjustments” and that “the actual seasonally-adjusted reading tends to miss expectations.”

Finally, I also said that “on the brighter side of things, seasonal adjustments also mean that the previous reading usually gets an upgrade.” Well, it looks like I was right on the mark for each and every one!

For starters, non-farm payrolls only increased by 156K in September, missing expectations of a 170K increase.

September NFP: Expected vs. Actual

The actual, seasonally-adjusted reading for September also happened to be much lower than the unadjusted reading.

September NFP: Unadjusted vs. Adjusted

And finally, the previous reading for August was upgraded from 151K to 167K, which also means that non-farm employment increased at a slower pace in September compared to August.

August NFP: Revisions

One thing I didn’t cover in the preview, though, was the NFP reading for July. And unfortunately, that was revised lower from 275K to 252K.

Also, if we take the upgraded reading for August and the downgraded reading for July together, we actually get a net loss of 7K jobs from all those revisions, which is obviously bad.

Earnings picked up, but…

  • Average hourly earnings m/m: 0.2% vs. 0.3% expected, 0.1% previous
  • Average hourly earnings y/y: 2.6% vs. 2.4% previous

Average hourly earnings increased by 0.2% month-on-month, picking up the pace from the previous month’s 0.1% increase. However, this is below the 0.3% increase that many analysts were expecting. Year-on-year, this translates to a 2.6% increase, which is faster than the 2.4% increase back in August.

Looking at the details of the NFP report, the pickup in wage growth was likely due to the 0.24% increase in hourly wages for the entire private service sector, given that the said sector accounts for 71.13% of total employment.

As for what drove the increase in wages in the service sector, the education and health services (+0.31% to $25.81) and the leisure and hospitality industry (+0.60% to $15.07) appear to be the main drivers, since these two industries account for 26.51% of total employment. It also helped that the higher-paying professional and technical services industry was one of the main job creators in September, generating 29.9K new jobs.

Jobless rate worsened

  • Jobless rate: ticked higher to 5.0% vs. steady at 4.9% expected
  • Labor force participation rate: ticked higher to 62.9% vs. steady at 62.8% expected

After holding steady at 4.9% for three months straight, the jobless rate finally deteriorates by ticking higher to 5.0% in September.

On a more upbeat note, the uptick in the jobless rate was likely due to the labor force participation rate climbing higher from 62.8% to a six-month high of 62.9%. This is great news because it means that working-age Americans who left the labor force for whatever reasons are getting encouraged to rejoin the labor force.

Unfortunately, the number of unemployed Americans also climbed higher by 90K to 7,939K, which means that the U.S. economy wasn’t able to handle the influx of new and returning workers.

Final Thoughts

The September NFP report missed expectations across the board once again. And quite naturally, the market reacted by dumping the Greenback also across the board.

USD Index 15-Minute Forex Chart
USD Index 15-Minute Forex Chart

Despite being a miss, however, non-farm employment was still above the 100K needed to keep up with the working-age population growth, so the NFP reading was still relatively good. Heck, voting FOMC members even came out of the woodworks to say how good it was.

Fed Governor Stanley Fischer, for example, said that the NFP reading for September was “pretty close” to the “Goldilocks” number needed for a rate hike. Meanwhile, Cleveland Fed President Loretta Mester said that “It’s a ‘solid’ labor report” and that “This is very consistent with what we [the Fed] expected to see.” Not to be left out, Kansas City Fed President Esther L. George also said that the September reading “was encouraging and suggests the momentum is continuing.

Do note, however, that all three Fed officials have shown some hawkish bias in the recent past, so their statements don’t necessarily reflect what the other FOMC members think. Heck, Mester and George even wanted a 25 bps rate hike during the September FOMC statement, so all the more reason not to buy into what they say too much.

September FOMC meeting voting record
September FOMC meeting voting record

Nevertheless, the hawkish rhetoric and the fact that the September reading was above the 100K floor were apparently enough to entice some Greenback bulls to start buying up the Greenback, as the odds of a December rate hike jumped from 63.4% to 70.8% shortly after the NFP report was released before finally settling at 65.1%.

December FOMC Meeting Probabilities
December FOMC Meeting Probabilities

However, the Greenback already climbed a great deal during the course of the week, so some profit-taking likely took place.

USD Index 1-Hour Forex Chart
USD Index 1-Hour Forex Chart

In addition, rate hike expectations for November were crushed from a 14.5% probability to just 8.3%, according to the CME Group’s FedWatch Tool.

November FOMC Meeting Probabilities
November FOMC Meeting Probabilities

Anyhow, it’s highly likely that the two aforementioned factors were the main reasons why the bulls’ attempt to send the Greenback higher was ultimately defeated.