Non-Farm Payrolls Fall -598k, Largest Drop in 35 years

Last updated 2/6/2009 8:47 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

In January, more than 598k Americans lost their jobs, which is the largest amount in 35 years. The unemployment rate also jumped to a fresh 16 year high of 7.6 percent. As we indicated in our non-farm payrolls preview, the bar was set very low for NFPs and in order to shock the markets, we would need to NFPs around -600k. US job losses were 2k shy of -600k, which is why we have seen such a dramatic reaction following the payrolls report in the currency market. The dollar's rally against the Japanese Yen suggests that traders believe the bad number will probably push the Obama Administration to act quickly on a passing the stimulus plan. Also we want to point out that the market's initial reaction to non-farm payrolls is not always the correct one.

Furthermore, given that we are probably only half way through the recession, unemployment could easily rise above 8 percent. Since the recession began in Dec 2007, US corporations cut more than 3.6 million jobs. The manufacturing sector also saw significant job losses of -207k while average hourly earnings declined at a slower pace. The number of jobs lost in the month of December was also revised from -524k to -577k. Although this is the thirteenth consecutive month of job losses, we expect non-farm payrolls to remain negative for at least the next 4 months. The level of debilitating job losses are the hallmark of a recession but the length of time that job losses have exceeded 500k is more indicative of a mild depression than a recession.

Despite the staggering job losses, the markets are not terribly focused on the non-farm payrolls numbers today. Traders are hopeful about developments in Washington including a possible Senate vote today and a bank rescue package on Monday. We have long said that a meaningful recovery can be triggered by a grand sweeping fiscal stimulus plan because monetary stimulus has been dried up.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.