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The April NFP report printed an upside surprise and so the Greenback tanked as a result. Wait, what? Yep, that’s right! So, if you need a quick rundown of the important details of the April NFP report, or if you’re wondering why the Greenback tanked, then this quick review may be just what you need.

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

Upside surprise for payrolls, but…

  • April non-farm payrolls: 211K vs. 190K expected
  • March non-farm payrolls: downgraded from 98K to 79K (-19K)
  • February non-farm payrolls: upgraded from 219K to 232K (+13K)

In my Forex Preview for the April NFP report, I noted that leading indicators were mixed but generally pointing to a slowdown in jobs growth due to weaker jobs growth in the service sector. However, I also noted that there’s a historical tendency April readings to be better than March readings and that the number of upside surprises are historically slightly higher as well.

Well, non-farm payroll numbers in April were definitely higher and there was an upside surprise to boot since non-farm employment increased by 211K, beating expectations for a 190K increase.

April NFP: Expected vs. Actual

Unfortunately, the previous month’s poor +98K reading was downgraded to a dismally poor +79K reading. But on a slightly upbeat note February’s reading was revised higher from +219K to +232K. Still, that means that jobs increased by 6K less than originally estimated, which is a slight bummer.

As for the usual breakdown, jobs growth accelerated in April thanks mainly to the rebound in the service sector after the previous month’s slowdown. Interestingly enough, the lower-paying “arts, entertainment, and recreation” and “accommodation and food services” industries accounted for almost a third of jobs growth in the service sector. The retail trade industry recovered at least after printing losses, although the higher-paying information industry continues to shed jobs.

April NFP: Services

Jobs growth in the manufacturing sector is more mixed, with the higher-paying durable goods manufacturing industry suffering losses while non-durable goods printed another increase. Overall, however, jobs growth in the manufacturing sector slowed in April compared to March (+6.1K in April vs. +12.7K in March), so ISM was right on this one while Markit’s findings that jobs growth accelerated was not.

April NFP: Durable Goods Manufacturing

April NFP: Non-Durable Goods Manufacturing

The bigger increase in government jobs gave the headline reading for non-farm payrolls a boost. But more interesting is that construction jobs generated in March was downgraded from +6K to +1K while construction jobs in April only saw a 5K increase. Does this mean that the slowdown in construction jobs was not a fluke due to snowstorms as some market analysts claimed last month? Well, that’s certainly food for thought.

April NFP: Others

Wage growth met expectations in April, but…

  • April average hourly earnings m/m: 0.3% as expected
  • April Average hourly earnings y/y: 2.5%
  • March average hourly earnings m/m: downgraded from 0.2% to 0.1%
  • March Average hourly earnings y/y: downgraded from 2.7% to 2.6%

Average hourly earnings increased by 0.3% ($+0.07) month-on-month as expected. However, the previous reading was unfortunately downgraded from 0.2% to 0.1%, or from 0.19% (+$0.05) to 0.08% (+$0.02) to be a bit more exact.

Almost all industries printed an increase in wages, but the biggest contributors was manufacturing, with wages in durable goods manufacturing increasing by 0.65% (+$0.18) and non-durable goods manufacturing increase by 0.70% (+$0.17).

The service sector helped drive up wage growth as well. The 0.31% (+$0.08) increase in earnings reported by the education, in particular, as well as the 0.46% (+$0.07) increase reported by the leisure and hospitality industry, were the main drivers, especially since the two industries combined account for around a quarter of private employment.

Year-on-year, wage growth slowed down a bit by printing a 2.5% increase, although a more precise reading shows only a slight difference (+2.54% in April vs. +2.59% in March).

Still, this marks the second month of weaker annual wage growth. Also, the annual reading for March was actually downgraded from +2.67%, so that’s another disappointing bit about wage growth.

Jobless rate drops again, but…

  • Jobless rate: 4.4% vs. 4.6% expected, 4.5% previous
  • Labor force participation rate: ticked lower from 63.0% to 62.9%

Instead of worsening to 4.6% as expected, the jobless rate improved further from 4.5% to 4.4% in April as the number of unemployed Americans fell from 7.20 million to 7.06 million. This is the lowest reading for the jobless rate since May 2007, which is great.

What’s not so great is that the labor force participation rate slid lower from an 11-month high of 63.0% to 62.9%, which means that some American got discouraged and left the labor force, causing the number of people not in the labor force to rise from 94.21 million to 94.38 million.

Final Thoughts

Jobs growth accelerated in April and even printed an upside surprise, which is why the Greenback initially tried to jump higher.

However, other details failed to impress. Sure the jobless rate improved further, but the participation rate worsened. And sure, wage growth met expectations, but the previous reading got downgraded and average hourly earnings have been weakening on an annual basis. And that’s very likely why Greenback bears later jumped in, although the Greenback did continue to advance against the yen and Greenback bulls continued to fight back against some of the other currencies.

Overall, the April NFP report was mixed, with wage growth being cited as the main reason for the Greenback’s weakness. Even so, the April NFP report was not enough to derail rate hike expectations. Odds for a June rate hike, for example, was hovering around 78.3% about 30 minutes before the NFP report, then jumped to about 83% when the NFP report was released, and then steadily eased when traders got a look at the details before settling down at 78.5%, essentially unchanged from pre-NFP odds.

June Rate Hike Odds (Post-NFP)
June Rate Hike Odds (Post-NFP)