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As Pip Diddy told you in his daily economic roundup earlier today, the U.S. NFP report disappointed markets when it showed a measly 38,000 rise in payrolls for January.

Aside from missing the forecast which anticipated an increase of 138,000, the report might have ruffled a few feathers since a few leading indicators such as the ISM manufacturing PMI, CB consumer confidence, and University of Michigan Consumer Sentiment reports got the markets hopes up for hot and sexy figures.

However, before you start booing the U.S. economy, you should know that it wasn’t all that bad. See, the reading for December was upwardly revised from 103,000 to 121,000, and the average hourly earnings doubled the forecast of 0.2% when it came in at 0.4%.

More importantly, we saw the unemployment rate drop a whopping 0.5% to 9.0% during the month. And FYI, this is the lowest reading we’ve seen since April 2009!

A few economic gurus think that if weather conditions in the U.S. weren’t so bad, we could’ve seen stronger job growth in January. If you ask me, I think I would give the NFP report for January a thumbs up.

Because looking past the measly uptick, I see that the employment-to-population ratio, otherwise known as the participation rate (which is also considered the cleanest measure of employment) posted a 0.1% uptick for a second the month in a row.

What the heck does this mean?

Basically, what this means is that more and more people are feeling confident about their chances of landing new jobs. This newfound confidence leads them to actively look for work, which raises the participation rate and pushes the unemployment rate higher.

This doesn’t mean I’m going gaga for the U.S. labor market though. Yes, labor conditions are improving but we have yet to see the economy create more jobs at a faster pace than what we’re seeing now.

Canadian Labor Market Posts Nice Surprise

Just across the border, Canada released its own employment numbers last Friday. They were a lot more impressive than the U.S.’s, to say the least.

According to January’s stats, a total of 69,200 jobs were added. Not only is this number over three times as large as the previous month’s 22,000 figure, but it’s also almost four times better than what was forecasted!

This basically translates to a 1.9% improvement year-on-year. But how does this compare to past years’ numbers? Well, historically speaking, Canada has only been able to record average monthly gains of 17,000 jobs. So 69,200 versus the long-term average of 17,000? You do the math!

Also noteworthy is how the Canadian unemployment rate unexpectedly jumped from 7.6% to 7.8%. To the common eye, this may seem like a bad thing. But we pipsters know better, right?

A closer look reveals that this rise in the unemployment rate can be attributed to a higher participation rate. And as I explained earlier (yo, you in the back, with the Big Pippin Beats, you paying attention?!), this means that the public is feeling more optimistic about the job market.

So while the unemployment rate may look less attractive (even downright Cyclopip-esque!) at 7.8%, its rise is actually the result of improving confidence, which, in such a time of economic uncertainty, is actually something very, very beautiful.

Are Fundies Driving Price Action?

If the markets’ reaction to data released last Friday is any indication, then it would seem that we’ve got the classical fundamentals-drive-price-action paradigm in play.

First, the dollar went on a tear despite the poor NFP data, primarily because traders decided to look at all the other evidence as a case of the glass being half full. The dollar gained against all other major currencies… except for one that is.

Hmmm… I wonder which little birdie that would be… Ahh, but of course, it can’t be any other than the Loonie!

As Pip Diddy also pointed out in his roundup, the Loonie was the only major currency to withstand the dollar bulls stampede, thanks to some good labor data of their own.

If this remains to be the case, then we should be in for a thriller once the next NFP report comes out.

Take note that there are those out there who believe that the past month’s horrific weather conditions were partially responsible for keeping NFP figures artificially low. If we see a big revision in next month’s release, we could hear more hawkish comments during the next FOMC meeting that should help the dollar rally.

As for Uncle Sam’s neighbor to the north, given the recent run of commodities, we may finally see BOC bankers get off their frozen behinds and indulge the markets with yet another rate hike, which would only give the Loonie more fuel to make a run for the 2011 currency of the year award.