The gains for December’s payrolls came out less than the median anticipated projection of 190K and also below the 2016 total payrolls yet above 2 million and the yearly expectations.

Based on the payroll headline figures for the month of December the U.S ended 2017 marking one of the most remarkable hiring streaks, a 7th consecutive year where the US hired more than 2 million workers.

With this, the US generated nearly 18 million new jobs since 2010.

With Unemployment Rate remaining steady at 4.1% for a 3rd consecutive print, a 2000 low, many economists expect a tapering in 2018 hiring as running out of workers now seems possible.

Despite wage growth improved in December economists see the 2017 expansion limited as this betides way below the average of 6.22, at 3.22.

December’s headline provided a bad read, hiring was kept back due to a drop in retail trade while the growth was predominantly seen in education and health care, manufacturing and construction.

US Change in Nonfarm Payrolls is at a current level of 148K, down from 252K last month and down from 155K one year ago.

Despite US published a second-class headline number FX rates were soon discounted.

The main reasons a weaker than expected headline was immediately discounted were:

• Jobless Rate remained steady for a 3rd month, June 2017 revised down from 4.4% to 4.3%
• Average hourly earnings increased 2.5%
• November headline print revised 24K up
• ISM Non-Manufacturing employment improves by 1.81%
• Participation rate maintained a 62.7% figure while Baby Boomers retire
• ADP reported early 70K added jobs in December
• Job cuts annual report lowest since 1990, employers announced 20.5% fewer cuts

What to look for in January’s report…

Along with the aforementioned updated figures that sparked last payrolls’ discount…

1. Actual vs Consensus divergence and Average Divergence: For the past year, economists’ estimations of the actual headline were out by a total of -153K. Think the average of this figure added to the forecasted number in January’s expectation. As for the previous versus the actual print, this figure is only -5.8K divergence.

2. US and EU Interest Rate differentials: The Fed raised the interest rate in December’s decision increasing the differential against the Euro by 25 basis points (1.25% to 1.50%) by moving the spread in the Dollar’s favour while capital inflows widen. But note, the Dollar has been driven by sentiment lately rather than interest rates.

3. ISM Manufacturing Employment Index: The relative weakness of the Employment Index could suggest a weak reading, especially when taking into consideration that this is the 4th consecutive month the Index comes out worse than the previous month. The 5Yr correlation between the Index and the Non-Farm Payroll numbers is 0.66 while the Non-Manufacturing Employment Index vs NFP correlation for the same period is 0.63. The ISM Manufacturing PMI report on the 1st of February should provide investors more clues.

4. Consumer Sentiment and the Stocks Market: Despite the rise in stocks does not prove that Consumer Sentiment will follow, over the past 10 years prices have more or less moved up and down at the same times. Nevertheless, the UoM Consumer Sentiment is an important indicator to look into as it disappointed investors last month, as NFP did, making the release pessimistic.

5. US Treasury Yields: Since the relationship between US Treasury Yields and the nonfarm payroll is negative an acceleration in the payroll growth has a negative impact on the 2-10Yr spread. Note that the intercept for the 10Yr Yield is higher than the 2Yr Yield, hence the intercept for the 2-10 spread is positive.

6. Unemployment Claims: The Unemployment Claims give us a glimpse of what the employment situation looks like o n a weekly basis, not monthly as the NFP. Unemployment Claims have so far increased ~23K and decreased ~6K in the three January reports (a total of +17K). Against the payroll this should imply somewhere near a 7K increase in non-farm payrolls, although this correlation is missing one more week of data.

7. Oil price and inflation figures: Oil prices are a major input to the US economy and have a direct impact on inflation. OIL is on a bullish rally so this could be a signal for a bad NFP. But note that the US Dollar is also very weak, a weak economy may mean lees Crude Oil demand.

The Author of the Special Report

“Stavros Tousios is an experienced Forex market specialist who provides insightful market analysis to traders of popular currency pairs, stocks, commodities and indices.

With a focus on technical analysis, he closely analyses present and historical market data in order to provide our clients with any relevant information which may help in making their strategic trading decisions.”