Today’s jobs report is highly anticipated by the market. After the disastrous ADP (i.e. private payrolls) from two days ago, everyone wants to see if the weakness appears in the NFP report too.
The labor market came back strongly after the February 2020 mayhem. The NFP added jobs each month for the last seven, and yet a huge gap remains to be filled. Currently, 37% of the workforce is unemployed for more than 27 weeks, a staggering number for the world’s largest economy.
What to Focus on Today’s NFP Report?
The NFP report is typically one of the most volatile reports. The reason for that belongs to the nature of the market – dominated by trading algorithms and quants. Because the data has a direct impact on the U.S. dollar, it is relatively easy to position for the outcome. The battle moves from being right to being fast, as all algorithms buy or sell at the same time based on how the actual number differs from the forecast.
Today’s report is special for several reasons. First, the outcome may already be priced in. Based on what the ADP showed, the market may choose to ignore the NFP and focus on the bigger picture – the Democratic control of Congress.
Second, data shown by economic indicators did not influence the market as it used to. During the pandemic, the focus shifted on potential vaccines, infection rate, and now to the rollout of the vaccine.
Third, even if the December NFP report will show the payrolls to fall by 24,000 as Oxford Economics predicts, the bad data can be easily overthrown by revisions. As is often the case, past data revisioning may show more jobs added in the month of November, outpacing the potential losses in December.
Also, the Unemployment Rate is important as well. Not once, it happened that it diverged from what the overall NFP number showed (i.e., unemployment dropping on job losses).
Finally, traders should dive into the report’s details. Things like average hourly earnings, labor participation rate, and permanent job losses are important enough to change the initial market reaction.
The dollar declined for the past seven months. In other words, the better the jobs data, the lower the dollar went. Will the dollar strengthen if the United States lost jobs in December 2020?