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Non-Farm Payrolls Up 120k, Drop in Jobless Rate Fails to Impress

Last updated 12/2/2011 10:08 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

At first glance, this morning’s U.S. non-farm payrolls report failed to impress the market. Yes, job growth was basically in line with expectations especially when taking into account the 20k more jobs that were added to the October report and Yes, the unemployment fell to 8.6 percent, its lowest level since March 2009. However with such a steep decline in the jobless rate, we would expect to see a much stronger reaction in the U.S. dollar and risk appetite. Risk rallied the minute non-farm payrolls were released but reverted back to its pre-NFP levels quickly thereafter. With most of leading indicators for non-farm payrolls stacked so heavily in favor of stronger job growth, speculators were front running the number and when payrolls fail to rise by 125k or more, they were sorely disappointed. Even though 125k was the consensus forecast, the whisper number was closer to 150k. Yet the lack of enthusiasm to today’s non-farm payrolls report is still surprising considering how much the unemployment rate declined. There are flaws to the household survey which generates the unemployment rate including a smaller sample set and greater volatility but at the end of the day, the decline is large enough that it should not be ignored because politicians will point to the number and pat themselves on the back for a job well done.

According to the non-farm payrolls report, a total of 120k jobs were created in the month of November, 140k of which was in the private sector. The manufacturing sector added 2k jobs which was less than expected. The big story was the unemployment rate which fell to 8.6 from 9.0 percent and the reason why we believe there is some validity to the drop in the jobless rate is because the U-6 unemployment rate which is a much broader measure of unemployment also declined to 15.6 percent from 16.2 percent. Unfortunately Americans are making less with average hourly earnings falling 0.1 percent, the hours worked remained the same at 34.3.

The main takeaway from today’s report is that the labor market is slowing recovering but the pace of recovery is still not strong enough to remove the risk of a double dip in 2012. As usual the report is subject to revisions and the unemployment rate could easily spike back up in the coming months – remember, one month does not make a trend. Although Federal Reserve officials will be relieved to see the jobless rate decline, the level of job growth and the labor market in general is not healthy enough for them to abandon their plans to increase transparency in monetary policy next month. They will still be looking to change the language in the FOMC statement to ensure that investors realize that they will do all it takes to keep rates low for an extremely long time.

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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.