The US non-farm payrolls report pointed to an economy significantly worse than believed.
The data showed the economy shedding 23K jobs in July, far worse than +80K expected and below any estimates in the survey of economists. Worse yet, the prior two reports were revised lower by a combined 103K jobs dropping the three-month average to just 20K jobs.
The market had been leaning towards a rate hike in September and priced in at 57% just before the data but that’s fallen to 44% afterwards. With that, the US dollar dropped across the board. USD/JPY fell particularly hard and is now down 127 pips on the day to 157.14.
The US dollar also tumbled against the Canadian dollar as — at the same time as the US non-farm payrolls report — Canada’s employment report showed 75.1K jobs compared to 15.0K expected. That pair is down 65 pips to 1.3948 and the lowest since June 15.
A big beneficiary of the drop in the dollar and the recalibration of Fed rate expectations is gold. It rallied hard earlier in the week and has jumped $122 to $4360 today. The weekly chart is now showing a big bounce after months of selling.
Equity markets are also upbeat about the number as it lowers the chance of a rate hike. S&P 500 futures are up 41 points, roughly doubling the pre-market gain. That said, much of the focus in stock markets is on the AI/tech trade rather than the intricacies of the economy.
In the bond market, US 2-year yields are down 6.8 bps on the day to 4.17%, relieving some of the pressure on bonds and adding a bid for safety in case the econom takes a sudden drop.
As for me, I’m fairly skeptical of this number. I flagged some weakness in my non-farm payrolls preview so I’m not shocked but the numbers from ADP and ISM don’t indicate any kind of big contraction or sudden drop in US hiring. I expect this to bounce back fairly quickly but also to re-ignite the debate about what is the steady-state of ‘full’ US employment monthly gains given aging demographics and low immigration. It wasn’t long ago that some Fed officials were saying that +20K monthly jobs were good enough. We will have to see if they still believe that.
For me though, the most-concerning part of the US labor force is how many people are dropping out of it, with nearly 1 million workers lost since May alone. Note the spart decline in the labor force participation rate.
This article was written by Adam Button at investinglive.com.