Trading the US Non-Farm Employment Change
RANsquawk Preview: Nonfarm Payrolls - 2nd May 2014
Here's Your Complete Preview Of Friday's Big Jobs Report
The official April U.S. jobs report will be released at 8:30 a.m. ET on Friday morning.
Here's a rundown of the expectations according to economists surveyed by Bloomberg:
- Nonfarm payrolls: +218,000
- Private payrolls: +215,000
- Unemployment Rate: 6.6%
- Avg Hourly Earnings: 0.2% MoM, 2.1% YoY
- Avg Weekly Hours: 34.5
- UBS's Sam Coffin: 150,000 — "Our forecast reflects a small boost from a residual weather-related rebound and some continued improvement in underlying trends, with a counterweight from unfavorable calendar effects... Within payrolls, incremental strength is likely in manufacturing, retail trade, and information industry payrolls—all of which had slowed, on balance, in recent months. The decline in jobless claims over the past month has been consistent with some labor market improvement. We do see some drag from calendar effects. The gap between the March and April payroll surveys was four weeks. A four-week gap has been associated with below- trend April payrolls in 12 of the last 15 instances (and more recently in 4 of the last 5 instances). We put the downward bias for this month at about 20k and otherwise would have estimated April payrolls at 200k."
- High Frequency Economics' Jim O'Sullivan: 185,000 — "...but we are allowing for the recurring pattern of payrolls being under-reported initially, only to be revised up later. Nor are we counting on any additional catch-up for weather effects. The household survey series on the number of people with a job but not at work because of bad weather was back to its normal level in March after being unusually high in February."
- Citi's Peter D'Antonio: 225,000 — "We expect another solid gain in payroll employment in April, as the labor market normalizes from the weather distorted readings in December and January. By our estimates, this should be the last reading influenced by winter weather. At this point, we think the trend is still about 180K per month, but we do expect that the running rate will pick up this year toward 200K. Note 1: We can’t rule out that the tail end of the payroll rebound occurs through revisions, rather than a big rise in April. Last month, the headline gain was smaller than we expected, but upward revisions to earlier months made up the difference."
The improving weather is the big story.
"We think the return to better weather in April will unleash some pent-up hiring, but we don't see a strong weather-related bounce," said Bank of America Merrill Lynch economists, who expect NFP to increase by 215,000.
"Among the components, we think the risk is that construction hiring disappoints given sluggish housing starts in March and low homebuilder sentiment in early April. Moreover, after revisions, it appears that construction job growth was fairly robust over the prior three months, following the decline in December. Job growth in manufacturing and the retail sector should increase given the pickup in production and sales."
Economists will also be keeping a close eye on hourly earnings for any sign that suggests wage growth will heat up.
"Earnings have been subdued and relatively stable for a while, and have not been a major market focus," said Credit Suisse economists. "This could change as the unemployment rate grinds lower and the degree of labor market slack becomes a hotter topic of debate."
Estimates for NFP range from 150,000 to 292,000. Economists on the high end of that range emphasize the low jobless claims number during the BLS's jobs report survey period. Here's some of what market economists are saying:
With this range so far, NFP can cause the eruption. Any change, even the smallest, can be interpreted as something big
NFP probably not doing the job for Draghi – 3 reasons
The surprisingly positive Non-Farm Payrolls in the US changed the picture for EUR/USD in the weekly look: from a gain to a loss. In an ideal situation for the ECB, the exchange rate of the euro falls without the central bank having to take action.
Is the NFP report doing the job for Draghi and pushing the exchange rate to more acceptable levels? Not exactly. Here are 3 reasons:
- EUR/USD still too strong: At 1.38 and probably also at 1.37, EUR/USD is still too close to the “line in the sand” of 1.40. With flows still coming into peripheral bonds, the bid nature of the euro could send the pair back to 1.40 and this also means that EUR/CNY remains too high. Both economic giants are important trade partners of the euro zone.
- Talk is cheap: The effect of verbal interventions, even though they have become more explicit, are diminishing. The markets are demanding action and not only words. If Draghi doesn’t act, his credibility will fall and the rise of the euro could accelerate.
- Only a catch up NFP?: This excellent jobs report from the US could be a one time spring bounce after the harsh winter months. The upcoming months could be OK but could reflect only a return to the previous levels of job gains and nothing else. April might turn into a catch up month and not an acceleration. So, the report does not imply any acceleration in QE tapering and the subsequent rate hike, which is probably far off. A mediocre jobs report for May could weigh on the dollar once again.
What do you think? Will Draghi act and push the euro much lower? Or will he let it float higher from current levels?
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US Non-Farm Employment Change measures the change in the number of newly employed people in the US, excluding workers in the farming industry. A reading which is higher than the market forecast is bullish for the dollar.
Here are the details and 5 possible outcomes for EUR/USD.
Indicator Background
Job creation is one of the most important leading indicators of overall economic activity. The release of US Non-Farm Employment Change is thus one of the most highly-anticipated releases, and an unexpected reading can quickly affect the direction of EUR/USD.
Nonfarm Payrolls has shown steady improvement in 2014 and climbed to 192 thousand in March. However, this was well short of the estimate of 199 thousand. The markets are expecting better news from the April release, with the estimate standing at 216 thousand. Will the indicator meet or beat this rosy prediction?
Sentiment and Levels
Eurozone continues to struggle with low inflation levels, and the ECB seems reluctant to step in, although ECB head Mario Draghi has said that negative deposit rates or QE are on the table. If April inflation numbers fall further, deflation concerns could hurt the euro. The exchange rate of the euro remains high and Draghi may again step in if the euro approaches the “line in the sand” level of 1.40. In the US, we finally get top tier indicators for a “clean” month. Given some positive early indications for April, the numbers could certainly be strong. The QE taper didn’t help the dollar, but continuing tapers from the Fed is a sign of confidence on its part in the US economy. So, the overall sentiment is bearish on EUR/USD towards this release.
Technical levels, from top to bottom: 1.4055, 1.40, 1.3964, 1.3865, 1.3830 and 1.3785.
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