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ISM Data Signals Smaller Drop in Payrolls

Last updated 3/4/2009 10:22 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Job losses in the month of February are predicted to be very bad, but the latest service sector ISM data suggests otherwise.  Activity in the service sector continued to contract with the non-manufacturing ISM report falling from 42.9 to 41.6.  The big surprise was in the details of the report.  The employment component, which is the strongest leading indicator for non-farm payrolls rose from 34.4 to 37.3.  Based upon the service sector ISM data, non-farm payrolls could fall by less than 600k. Regardless of how you look at it, job losses in excess of half a million is very negative but we think that more people were been laid off in January than February. The last time the employment component rebounded was in December (as indicated in the following chart) and job losses tempered modestly.  The ADP employment report, jobless claims and Challenger layoffs suggest severe job losses, but we believe otherwise.

The prospect of a better than expected non-farm payrolls report and further stimulus from China support today's recovery in risk appetite.  However, the gains in the Euro and British pound should be limited ahead of Thursday's interest rate decisions.  There is a good chance that Chinese Premier Wen Jiabao could make an announcement tonight.  Demand from China has supported the global economy for the past decade and if the country recovers, everyone will benefit. If traders are able to beat back the earlier news about weak jobs and focus on the prospect of a stimulus package from China, the rally in currencies will last. 

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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.