Payroll Numbers Beat Expectations, But Trend May Be Temporary

by: Kathy Lien posted on: May 02, 2008    
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To the relief of dollar bulls, US corporations cut only 20k jobs in the month of April compared to the market’s -75k expectations. The unemployment rate also dropped from 5.1 to 5.0 percent, triggering a widespread dollar rally. The better than expected NFP number will help to confirm the near term bottom in the US dollar.

The manufacturing sector continued to lose jobs, as the primary improvement came from the service sector. Unfortunately calling NFPs this month was particularly difficult since service sector ISM is not released until Monday. This is actually the third month in a row that the service sector has added jobs thanks to education, leisure and business services. The positive thing about the report is that there were 29k jobs cut from the private sector, only slightly worse than the headline number.

However traders should be careful of being overly optimistic because given the amount of layoffs that have been announced over the past month and the trend of jobless claims, this should only be a temporary relief in the US economy.

We gave the reasons yesterday in our non-farm payrolls preview.

If the US economy is truly in a recession, job losses will escalate. During the last 3 recessions, there was a string of job losses that lasted for a minimum of 10 months. In each of the past 3 recessions, the largest single month job loss was more than 300k. In this context, there is still a very strong possibility of a 100k drop in the coming months.

For the Federal Reserve, this is good news because it validates their hawkish comments. They also have the benefit of seeing the non-farm payrolls report for the month of May before making their next monetary policy decision.

EUR/USD Could Still Head Lower

Sentiment and technicals have been pointing to further gains for the US dollar and weakness in the Euro and now with non-farm payrolls, fundamentals support that view as well.

The Federal Reserve also expanded the collateral that they are willing to receive under the Term Securities Lending Facility. This is aimed at adding liquidity to the financial system which should also be positive for the financial markets.

Here is a review and what to expect as event risk will likely lead to increased volatility. Going forward, remain aggressively bearish against 1.5643 (red line). Measured support does not begin until 1.5230 (100% extension of 1.6018-1.5554/1.5694). Subjectively, we favor a deeper decline to at least the 161.8% extension, at 1.4943, in the coming weeks.

This article has 8 comments! Add yours below...

Kathy Lien

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This article has 8 comments:

  •  
    User 143167
    May 02 10:05 AM
    My Website
    Unemployment rate is down 0.2% when NFP is negative. It looks to me that 0% unemployment rate is well achieveable soon. Cheers!
  •  
    Moses
    May 02 10:27 AM
    If technical analysis says so it must be true.
  •  
    Tao
    May 02 11:02 AM
    I wonder if they count those who are private contractors. For instance, my son in law was laid off last week. He 'owned his own business as far as a truck and a few tools, but he worked daily for the same company. He paid his own Social Security and Medicare.

    Another company bought the company he worked for and hasn't hired any of those who worked for the purchased company

    A private contractor can't draw unemployment benefits, so there is really not a record of them being laid off that I know of.
  •  
    Coelacanth
    May 02 01:36 PM
    Great technical analysis Kathy.

    Maybe God is being merciful by making next week is a pretty light economic news week for the U.S. (lol) I expect investors to turn their attention back to earnings again. If earnings come in anything like the 75% or so of companies that have already reported, this should lend support to the dollar.

    Conversely (and probably to the dollar's benefit) next week is a heavy economic news week for the Euro-zone i.e. retail sales, BOE & ECB rate decisions, Euro-zone PMI for April, etc. If collectively these indicators show continued or accelerating weakness, this may also contribute to dollar strenghthen.

    As such I may be looking to play the dollar higher or ride up improving risk appetites.



  •  
    CarlosSlim
    May 02 02:41 PM
    My Website
    Jobs? Doing what?

    Giving foreclosure tours?

    Mowing the lawns of foreclosed homes for banks to make them look lived in?

    Holding hands of people who are behind on their payments at mortgage brokers?

    If these new jobs were jobs building bridges, highways, new "green" infrastructure for 21st Century jobs, nationwide WiFi, etc...that's a good thing.

    The Exon Valdez oil spill created "jobs", but nobody in their right mind would consider these jobs a "healthy" sign of an improving economy.

    If most of these jobs are to "fix" the mess we're currently in, then how can these "jobs" strengthen the economy long-term?

    How many of these "jobs" actually involve making something?
  •  
    gaucho
    May 02 10:48 PM
    My Website
    Construction jobs are far greater than they would appear. The South American illegal’s cannot claim unemployment. There are whole Latino commercial areas in Chicago that are ghost towns already. Once this has past they the unemployment numbers will begin to accelerate.
  •  
    paulibloom
    May 03 05:41 PM
    The Monster Online employment index has increased sequentially for the past three months-check it out. In addition we have the comments about the BLS data from Mark Perry (Carp Diem Blog) "According to the more comprehensive Household Survey Data (which unlike the establishment data, includes the self-employed, unpaid family workers, agricultural workers, and private household workers), there were 146.331 million Americans employed in April (see chart above), which is: a) 618,000 higher than April of last year (145.733 million jobs), and b) 362,000 higher than March of 2008 (145.969 million). " You should also review bank loan data from the St Louis Fed which shows loan growth of around 10%. Those are the facts-sorry it does not fit your thought process.
  •  
    Sgt.Sally
    May 05 12:36 PM
    My Website
    I believe we are exporting our unemployment. All the "guest workers" in construction are going home now. Also, Chinese factories may go back to 2 shift per day. Pakistani children may be allowed to go back to school!
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