Last Friday’s NFP report revealed that the job market in the United States remains fragile. On expectations of +60k, the economy lost 140k jobs in December, much worse than expected.
The market reacted initially by selling the dollar, only to reverse toward the end of the trading sessions. The reason for that comes, once again, from the details in the report that suggested that the report, while bad, could have been worse.
Details of the First NFP Report of the Year
The loss of 140k jobs cannot be viewed as a positive sign, no matter how you put it. The number was particularly shocking, especially considering how big the difference from the consensus was. However, the November data was revised higher. More precisely, from 245k, the data was revised to 336k, a bit of a sweetener to the terrible December data. At the same time, the unemployment rate and the labor participation rate remained unchanged for the month.
A close look at the economic sectors reveals that the leisure and hospitality sector was affected the most – unsurprisingly, we may say, as the pandemic takes its toll on the economy. On the other hand, the construction sector continued to add jobs, albeit at a slower pace.
All in all, the details in the report show a labor market that keeps struggling. Also, they justify the need for further stimulus and show how difficult it is for the largest economy in the world to cope with the pandemic.
If we use February 2020 as a benchmark, we see that overall employment is a bit higher than the worst gap during the Great Recession. However, the problem here is that the pandemic is not over, and we cannot calculate how long it will take for the job market to recover all the lost jobs.
Coming back to Friday’s report, temporary layoffs rose from 2.8 million to 3 million, the first increase since April 2020. On the other hand, permanent layoffs declined to 3.4 million from 3.7 million. This is a crucial piece of the employment report and one of the few positives of this report.
After initially hesitating, the dollar traded higher for the rest of the day and started this week with a bullish tone too. Should the rally continue this week, we may look back at Friday’s NFP report as being the one that ignited a major turn in the dollar.