Wow. What a confusing jobs report.
The most important economic data release of the month caused flip-flopping in the US dollar on Friday as a decline in US jobs was offset by solid readings for earnings growth and unemployment.
The US Bureau of Labor Statistics said on Friday that non-farm payrolls fell by 33,000 in September, against a market expectation heading into the release for an increase of 82,000 and against August’s increase of 169,000 (revised from 156,000).
Friday’s data marked the first decline in payrolls in more than seven years and would ordinarily have been indicative of a major economic impact from hurricanes Harvey and Irma. However, payrolls told only half the story.
In contrast to the payrolls disappointment, the unemployment rate in the US fell in September to a sixteen-year low of 4.2% and average hourly earnings grew at their fastest pace in seventeen months, by 0.5% – comfortably higher than the market forecast for growth of 0.3% and August’s growth of 0.2%.
The obvious discrepancy between the dollar-supportive unemployment number and the wildly dollar-repressing payrolls print is explained as follows by Josh Mitchell of Fox Business:
“The payrolls survey [a survey of businesses] counts a drop in employment if a person doesn’t work and isn’t paid during the survey week. The household survey, which reflects the unemployment rate, counts a person as employed as long as he or she keeps the job.”
With 1.5 million people officially employed but unable to attend work and unpaid during the onslaughts of Harvey and Irma, it follows that the impact of the hurricanes would be seen more strongly in payrolls data than it would be in the unemployment rate.
“Indeed, this is a story of different surveys,” says Bloomberg’s Sho Chandra.
For this reason, many analysts are suggesting that September’s jobs report should be ignored completely. The report “means nothing about anything,” says economist and former investment banker Marc Chandler.
As for Federal Reserve decision makers, these expressed mixed feelings over December’s expected rate hike following Friday’s data.
“I judge that it is still appropriate to continue to remove monetary policy accommodation gradually,” said New York Fed President William Dudley.
A more cautionary tone was struck by St. Louis Fed President James Bullard, who said that “the December meeting is going to be too early to make a determination on whether inflation is coming back.”
“If we go too far [on rates]…we might hinder our ability to hit our [inflation] target,” Bullard added.
Dallas Fed President Robert Kaplan appears undecided.
“I‘m going to watch a little bit here. We have the benefit of having a little time and I plan to take it,” Kaplan said.
Regardless, derivatives markets continue to price in a near-90% probability that the Fed will raise US interest rates by a quarter-point at its December meeting.
The dollar initially jumped on Friday’s data to multi-month highs against many of the other majors before reversing sharply and ending the day broadly lower.
Dollar strength initially pushed EUR/USD to a seven-week low of $1.1669 before the pair reversed to $1.1733, for a gain on the day of 0.2%. The pair ended the week 0.7% lower.
USD/JPY jumped to a twelve-week high of ¥113.44 upon the release of the jobs report but an especially sharp reversal saw the pair lose 0.2% to ¥112.61 before the day was out. On the week, the pair was little changed.
USD/CAD climbed to a five-week high just shy of C$1.26 (C$1.2597) before settling 0.3% lower at C$1.2529. USD/CAD was 0.5% higher on the week.
The Australian dollar lost value on a daily and weekly basis. A midday rally in AUD/USD wasn’t enough to prevent a loss on the day of 0.3%. The pair ended the week at $0.7772 but had seen a twelve-week low at one stage on Friday of $0.7733. Sentiment on the “Aussie” remains downbeat after Thursday’s woeful retail sales data, which showed Australian sales falling by the most in four years. AUD/USD lost 0.3% this week.
The US Dollar Index ended Friday 0.1% lower at 93.80; up 0.75% on its close one week earlier.