I hope you guys aren’t burned out yet because at 12:30 pm GMT tomorrow, the U.S. will release its March non-farm payrolls report!
This monthly release is widely considered to be one of the most important and most-watched U.S. economic reports. It serves as a key leading indicator for consumer spending, which contributes almost two-thirds of the U.S.’s overall economic activity.
According to economic fortunetellers, we should expect to see a net total of 198,000 jobs added last month. It ain’t exactly the strongest follow-up to the 236,000 jobs that were created in February, but it is a good deal higher than the 159,000 that jobs growth has averaged since 2010.
In turn, this is expected to keep the unemployment rate steady at 7.7%, after dropping from 7.9% back in February.
ADP Hints at a Downside Surprise
Forecasts for the NFP show a bit of optimism and point at a firming labor market, but the actual results may just leave the markets disappointed. After all, ADP employment report, which was released just yesterday and is often considered a sneak preview of the NFP, printed results that were nowhere near the consensus forecast.
According to the report, only 158,000 jobs were created in March, which is well below the growth of 203,000 that many had anticipated. Take note, the ADP has done a pretty good job of predicting the NFP results. In four of the last five releases, it showed better-than-expected results, and the NFP followed suit.
Potential Reactions to NFP
If we look at how price moved following the ADP report, we can have an idea of how traders will respond to the upcoming U.S. employment data.
From the charts above, it’s pretty clear that traders reacted fundamentally to the ADP. It came out worse than anticipated, which resulted in a weaker dollar. I expect the same to happen on Friday if the non-farm payrolls fail to meet consensus.
I’d also like to point out that the Federal Reserve has stated that it is using the health of the job market as a major factor in their monetary policy decisions. If the labor market continues to improve, the Fed could start cutting down on bond purchases earlier than expected, which would likely be dollar bullish.