Surprise, surprise! The U.S. economy churned out another disappointing jobs figure for the first month of the year, following December’s dismal employment report. The January non-farm payrolls report showed a 113,000 increase in hiring, lower than the estimated 180,000 gain.
Components of the report revealed that government agencies and the retail industry cut back on hiring during the month while the construction and manufacturing sectors added jobs. In particular, construction companies hired an additional 48,000 workers in January to offset the layoffs due to weather-related factors in the previous month. Department store chains such as Macy’s and J.C. Penny, on the other hand, scaled back their workforce now that the holiday shopping sprees are over.
Interestingly enough, despite consecutive months in weaker than expected employment gains, the jobless rate posted another decline from 6.7% to 6.6% last month. That’s its lowest level since October 2008 and just one notch away from the Fed’s unemployment rate target.
By this time though, most market participants are able to take this “improvement” with a grain of salt, as recent declines in the jobless rate are simply spurred by the dropping participation rate. This means that more and more Americans are exiting the labor force and giving up hope in finding full-time jobs. With that, some Bloomberg analysts have dubbed the NFP as “the single most over-hyped, over-analyzed, over-emphasized, least-understood economic release known to mankind.” Ouch!
While the accuracy of the NFP in terms of measuring improvements in the labor market has somewhat declined recently, there still might be a few patterns worth noting. For one, as I pointed out in my January NFP preview, weak results would confirm that the December jobs disappointment wasn’t just a fluke. This sheds light on why the Greenback lost ground to its counterparts after the release, as some traders probably priced in dovish remarks from Janet Yellen in her upcoming testimony.
Aside from that, this reflects how the U.S. dollar continues to groove to the tune of fundamentals rather than risk sentiment. Volatility has been picking up these days and traders have been pretty jumpy, yet the dollar might keep giving back some of its recent gains on expectations of a slower taper.