Forex News – US December Nonfarm payrolls disappoint but miss could be weather-related
January 10, 2014 3:34 pm
(click to enlarge)
The announcement of much lower-than-expected nonfarm payrolls for December caused a temporary upset for the markets but its longer-term significance might prove questionable. Payrolls for December came in at only 74 thousand versus economists’ expectations of gains of 196 thousand. On a positive note, November’s nonfarm payroll figure was revised upwards to 241 thousand from 203 first reported.
Although the news has ‘shock value’, it is quite plausible that some special circumstances such as cold weather and other one-time factors coincided to reduce the number of new jobs created. The report went against the signals from other indicators, such as the ISM reports which showed healthy expansion in employment or the ADP private sector payroll report released only two days ago and showed bumper job gains during December.
For example, in the nonfarm payroll report, construction went from +19 thousand jobs to -16 thousand in December, while manufacturing also fell to +9 from +31. Transport and warehousing were also down to a negative 0.6 from a positive 34.9 thousand the previous month. There were significant gains only for retail (+55.3 thousand vs +21.9 previous) and temporary help positions (+40.4 versus 12.8). Government jobs were reduced by 13 thousand whereas they had risen 15 thousand in November.
On the other hand, the survey which is based on replies from households (nonfarm payrolls are computed based on replies from businesses), showed that the unemployment rate fell to 6.7% compared to 7.0%. Although this is getting very close to the 6.5% threshold after which the Fed could theoretically start to consider to tighten monetary policy, the drop in the unemployment rate was mainly the result of a reduction of the workforce.
This happened because a large number of unemployed persons – almost 350 thousand – dropped out of the labor force as they stopped looking for a job or were not available to start working. The labor participation ratio, or the ratio of the working age population which is either working or looking for a job, dropped to its lowest since 1978 at 62.8%, down 0.2%.
To sum up, the report is most likely a one-off since other indicators are pointing to a continuation of the US economic recovery. It is unlikely at this stage that the report will prevent the Fed from tapering some more during its January.
The report cannot be dismissed altogether however as it is one of the more reliable and timely economic indicators. It therefore introduces uncertainty on two fronts. Firstly, it should be checked that December’s and possibly January’s job weakness are one-off events and that other indicators do not confirm any slowdown. Secondly, it reduces the usefulness of the unemployment rate as a tool for forward guidance by the Fed and it could complicate the Fed’s task to convince the markets that rates will stay low for a prolonged period.
In the aftermath of the report the dollar was down across the board, stocks fell and treasury yields also fell as bond prices rose.
(click to enlarge)
The announcement of much lower-than-expected nonfarm payrolls for December caused a temporary upset for the markets but its longer-term significance might prove questionable. Payrolls for December came in at only 74 thousand versus economists’ expectations of gains of 196 thousand. On a positive note, November’s nonfarm payroll figure was revised upwards to 241 thousand from 203 first reported.
Although the news has ‘shock value’, it is quite plausible that some special circumstances such as cold weather and other one-time factors coincided to reduce the number of new jobs created. The report went against the signals from other indicators, such as the ISM reports which showed healthy expansion in employment or the ADP private sector payroll report released only two days ago and showed bumper job gains during December.
For example, in the nonfarm payroll report, construction went from +19 thousand jobs to -16 thousand in December, while manufacturing also fell to +9 from +31. Transport and warehousing were also down to a negative 0.6 from a positive 34.9 thousand the previous month. There were significant gains only for retail (+55.3 thousand vs +21.9 previous) and temporary help positions (+40.4 versus 12.8). Government jobs were reduced by 13 thousand whereas they had risen 15 thousand in November.
On the other hand, the survey which is based on replies from households (nonfarm payrolls are computed based on replies from businesses), showed that the unemployment rate fell to 6.7% compared to 7.0%. Although this is getting very close to the 6.5% threshold after which the Fed could theoretically start to consider to tighten monetary policy, the drop in the unemployment rate was mainly the result of a reduction of the workforce.
This happened because a large number of unemployed persons – almost 350 thousand – dropped out of the labor force as they stopped looking for a job or were not available to start working. The labor participation ratio, or the ratio of the working age population which is either working or looking for a job, dropped to its lowest since 1978 at 62.8%, down 0.2%.
To sum up, the report is most likely a one-off since other indicators are pointing to a continuation of the US economic recovery. It is unlikely at this stage that the report will prevent the Fed from tapering some more during its January.
The report cannot be dismissed altogether however as it is one of the more reliable and timely economic indicators. It therefore introduces uncertainty on two fronts. Firstly, it should be checked that December’s and possibly January’s job weakness are one-off events and that other indicators do not confirm any slowdown. Secondly, it reduces the usefulness of the unemployment rate as a tool for forward guidance by the Fed and it could complicate the Fed’s task to convince the markets that rates will stay low for a prolonged period.
In the aftermath of the report the dollar was down across the board, stocks fell and treasury yields also fell as bond prices rose.
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