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Payrolls to See Biggest Drop in 60 Years?

Last updated 4/1/2009 10:10 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

The first batch of leading indicators for U.S. non-farm payrolls are in and it appears that there was no relief for the labor market in March. In fact, there is a decent chance that payrolls dropped by the largest amount in more than 60 years. The dollar is appreciating against all higher yielding currencies on the fear that non-farm payrolls will be shockingly weak. These days, it is important to remember that bad news is positive for the dollar and good news is negative because the dollar is trading on risk appetite and not economic data. 

It is very realistic for job losses this month to have exceeded -700k. The current forecast is for a -660k decline. Unlike previous months, non-farm payrolls is more difficult to call because service sector ISM which is a leading indicator for payrolls is being released after NFP. The employment component of manufacturing ISM increased marginally in February but remains near record lows.   

The ADP report which measures private sector employment fell by -742k, the sharpest decline ever. Layoffs according to the Challenger report surged by 180.7 percent, suggesting that job losses may have accelerated while weekly jobless claims exceeded 650k three out of the past four weeks. The only silver lining would have to come from the public sector, but there is little chance that the increase in government jobs would be more than 10k or 20k. Everything else points to the biggest contraction in the labor market since September 1945. 

Meanwhile manufacturing conditions showed a mild improvement in March with ISM rising from 35.8 to 36.3 while the signs of stabilization continue to come out of the housing market. Construction spending fell by a much smaller amount in February while pending home sales rose 2.1 percent. The market's full focus will not turn to the U.S. employment report until late Thursday after the ECB interest rate decision and the G20 meeting. There are still 2 major event risks that could affect the currency market before non-farm payrolls.

Comments on ADP Employment Report

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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.