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Non Farm Payrolls Preview | NFP to Beat the Predictions Again?

BY Janne Muta

|November 3, 2023

Non Farm Payrolls - As the traders around the globe are waiting for the US October employment data release later on today, analyst consensus expects the report, to show a conservative 178K new jobs. This would be a significant deceleration from September's robust 336K.

It is worth noting though that analysts have been too pessimistic over the last two years. Since the beginning of 2022 the actual NFP result has beaten the consensus prediction 18 times.

In other words the analyst consensus has almost without exception underestimated the strength of the US jobs market. It is safe to assume that the probabilities are on the side of those betting that the number will once again beat analyst expectations.

Job Market Stability

Despite aggressive interest rate hikes aimed at taming inflation, the U.S. job market has been stable. The service sector remains a key employment driver, with the S&P Global US Services PMI indicating continued albeit modest expansion.

In contrast, manufacturing paints a bleaker picture, hinting at potential softness in the NFP with the ISM Manufacturing PMI signalling contraction.

ADP Jobs Report Insight

The ADP jobs report revealed that private companies added 113K jobs, falling short of the 150K anticipated but still surpassing the monthly 70K -100K job additions needed to keep pace with the expanding working-age demographic.

This indicates that while there is a slight easing in the job market's growth rate, it still remains resilient amidst high interest rates.

Job Market Dynamics

The labour market's strength is further reflected in the 9.55 million job openings in September, suggesting the job market still favours the employees. However, rising unemployment claims and the highest continuing claims in nearly two months inject a note of caution, hinting at a disconnect between available jobs and job-seeker success.

Wages and Inflation

As for wages, a critical inflation indicator, the forecasted 0.3% rise in average hourly earnings will be a closely followed data point. The employment cost index showed wages up by 4% from a year earlier, a slowdown from the 4.2% increase reported previously.

This, however, was still above the Fed’s comfort zone. With the unemployment rate projected to hold steady at 3.8%, the narrative of a cooling labour market is not straightforward.

Fed's Economic View

Fed Chair Jerome Powell has acknowledged the improved labour supply, attributing it to increased workforce participation and immigration, as factors that could help temper wage pressures. However, the economy's unexpected robust growth in the third quarter could mean those pressures are likely to remain.

Strong consumer spending and job market resilience suggests the inflation will not return to Fed’s target rate of 2% any time soon.

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Potential USD Market Moves

With the NFP report, all eyes will be on whether the job market can sustain its strength against the Fed's inflation-fighting measures. A stronger-than-anticipated report with strong earnings growth would be likely to lift the dollar and pressure the risky assets.

Conversely, a weaker than expected jobs and earnings growth should pressure the dollar and help stocks, commodities and the major dollar counterparts in the currency markets.

How would you trade the USD today?

I hope this fundamental US employment market analysis helps you to make better informed trading decisions. Check the latest market analysis for other instruments and subscribe to receive them in your inbox as soon as they are published

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.