Sunday, December 5, 2010

US Non-Farm Payrolls

The US employment report for November reported headline non-farm payrolls of only +39K from a revised +172K in October, compared to consensus expectations of +150K. Upward historical revisions did little to offset the report's negative surprise, with October revised to +172K from an initial +151K and September revised to -24K from a previous -41K and an initial -95K. Net historical revisions totaled +38K jobs. 

Separately, the unemployment rate rose to 9.8% in November from 9.6% in October, on consensus expectations on 9.6%. The household survey reported a loss of -173K jobs in November from -330K in October and +141K in September. Elsewhere, the average work week was unchanged at 34.3 hours, while average hourly earnings were up 0.0% m/m and 1.6% y/y at $22.75 and average weekly earnings were up 0.0% m/m and 2.8% y/y at $780.33. The ADP employment report remains the best point estimate that we have for non-farm payrolls, but failed to provide any guidance on today's negative surprise. While seasonal adjustment issues may have been be a factor, the loss of jobs in the household survey over the past two months is an indication that jobs growth is not as secure as earlier thought.

A breakdown of the establishment survey was negative across the board. Construction employment lost -5K jobs in November from +3K in October, while manufacturing lost -13K jobs from -11K. The service sector gained +65K jobs in November from +157K in October, with retail trade losing -28K jobs from +13K; trade and transport losing -13K from +24K; while business services gained +53K from +50K. Health and education added another +30K jobs from +64K, while government lost a further -11K jobs from +12K following the distortions caused by temporary census workers. The Labor Department stated in its report that the unemployment rate for adult men rose to 10.0% from 9.7%, adult women rose to 8.4% from 8.1%, while teenagers declined to 24.6% from 27.1%. More importantly, discouraged workers rose to 1,282K in November from 1,219K in October and 1,209K in September.

The civilian labor force grew by 103K in November, despite a 63K increase in discouraged workers and a 103K increase in the number of workers NOT in the labor force. Despite the encouraging signs seen earlier this year, the percentage of unemployed, discouraged and marginally attached workers has remained around the 11% level for over a year now. The concern here is that an increasing number of workers are becoming structurally unemployed.

The unemployment report prompted a rare simultaneous drop both Dow futures and the USD. Dow Jones futures fell -100 points within the first half hour after the report, recovering about half of that by the 9:30am NYSE open. At the same time, the EUR/USD surged to a session high of 1.3368 by 9:10am EST from 1.3255 following the report and an overnight low of 1.3193. Similarly, GBP/USD rallied to a session high of 1.5706 by 9am from 1.5630 following the report and an overnight low of 1.5581, while USD/JPY plunged to a session low of 82.53 by 9am from 83.75 following the report and an overnight high of 83.90. Among the dollar-bloc, AUD/USD rose to a session high of 0.9867 from 0.9810 following the report and an overnight low of 0.9739. However, the impact on the loonie was muddled by an earlier Canadian employment report (15.2K on expectations of 19.8K), with USD/CAD rising to 1.0081 by 8:50am from 1.0025 following the US report and 1.0010 following the Canadian report. AUD/JPY initially fell a full big figure at 8:30am to 81.20 from 82.20, reflecting the negative impact on market risk appetite. 

More interesting than the disappointment in non-farm payrolls is the selloff in the USD, which typically moves in the opposite direction of stock prices due to its premier safe haven status. We have seen this occasionally over the past year, but it does not last. What this likely reflects is reluctance of market players to add to fresh long USD positions ahead of the weekend in light of the unexpected rally in equities over the past two sessions. However, if the stock market begins to selloff again next week, expect the USD to regain lost ground - aided by any further negative developments in Europe.
http://gm.bankofny.com/Research

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