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Hello, forex buddies! We’ve got another NFP Friday coming up, so if you’re planning to trade this event and you need to know what happened during the previous NFP report, as well as what’s expected for the upcoming one, then this Forex Preview is just for you.

What happened last time?

  • Non-farm payrolls: 242K vs. 195K expected, 172K previous 151K
  • Jobless rate: held steady at 4.9% as expected
  • Average hourly earnings: -0.1% vs. 0.2% expected, 0.5% previous
  • Labor force participation rate: climbed higher to 62.9% vs. 62.7% previous

In my previous Forex Preview for the February period NFP report, I revised my earlier conclusion that there was a possibility of an upside surprise to a possible downside surprise when I saw that the employment index of the ISM non-manufacturing PMI report dramatically slumped from 52.1 to 49.7.

Well, it turns out that my earlier conclusion was the more accurate of the two, given that non-farm payrolls saw a net increase of 242K, which is substantially better than the expected 195K net increase. In addition, the previous reading was upgraded from a net increase of 151K to 172K, which is awesome.

Moreover, the labor force participation rate climbed higher to 62.9% from 62.7%, but the jobless rate held steady at 4.9%, which is great since that means that the U.S. economy was able to absorb the influx of workers who decided to join (or rejoin) the labor force.

However, the details of the report reveal that a large chunk of the job gains were part-time positions, which is probably one of the reasons why wages contracted unexpectedly since part-time workers usually get paid less than full-time workers.

And the lower wages were the one labor indicator that disappointed forex traders the most since it probably fueled speculation that the Fed may delay hiking rates further.

The NFP report was rather pretty on the surface, which is why forex traders loaded up on the Greenback as a knee-jerk reaction. But when they realized that many of the job gains were part-time jobs and that wages contracted, they decided to dump the Greenback across the board.

The Greenback was later able to recover (and then some) against its fellow safe-havens, though. And that was likely thanks to the prevalence of risk appetite at the time, which weakened demand for safe-haven currencies like the Japanese yen and the Swiss franc.

USD/JPY: 15-Minute Forex Chart
USD/JPY: 15-Minute Forex Chart

What do forex analysts expect?

  • Non-farm payrolls: 202K expected vs. 242K previous
  • Jobless rate: expected to hold steady at 4.9%
  • Average hourly earnings: 0.2% expected vs. -0.1% previous

For the employment situation during the March period, non-farm employment is expected to print a net increase of 202K, which is a bit lower than February’s 242K.

The jobless rate is also expected to hold steady at 4.9% while wages are expected to grow by 0.2% after the previous month’s disappointing 0.1% drop.

We only have a few leading indicators available because the ISM manufacturing PMI report will be released on the same day as the NFP report (boo hoo!) and the ISM non-manufacturing PMI report won’t be released until April 5 (boo hoo hoo!).

We still have the ADP non-farm employment report, though, and it printed a net increase of 200K jobs in March.

Regarding the details of the ADP report, manufacturing added 3K jobs after shedding 9K jobs back in February while the construction industry only added 17K jobs, which is less than February’s 24K increase.

The service sector also only saw job gains of around 191K, which is noticeably lower than the previous month’s 204K increase.

Moving on, Markit’s preliminary manufacturing PMI reading for March climbed to 51.4 from 51.0, and commentary from the report noted that job creation enjoyed a “modest rebound” from “February’s five-month low,” thanks to “long-run expansion plans and efforts to lower their backlogs of work” due to an increase in new business volumes. Incidentally, this coincides with the net increase in manufacturing jobs, as reported by the ADP employment survey.

As for Markit’s preliminary services PMI, it went back into expansion mode in March after dipping into contractionary territory back in February (51.0 vs. 49.7 previous).

According to the report, “service providers signaled another solid increase in payroll numbers during March.”

In fact, job creation even “accelerated slightly since the previous month and remained faster than the survey average.” In addition, survey respondents reported that there were “stronger salary pressures” in March.

Overall, the available leading labor indicators and reports seem to support another healthy round of job increases, so the consensus readings seem about right. There’s a possibility that the net increase in employment will try to match or exceed February’s 242K figure, though. In addition, commentary from Markit’s services PMI report hint that wages may have grown slightly, at least in the labor-intensive service sector.

As usual, make sure to keep a close eye on wage growth since another contraction might convince forex traders, especially the interest rate junkies, to rule out a rate hike within the first half of the year.