A disappointing job report: a gain of only 209K, below expectation, but not a total disaster. The unemployment rate is higher at 6.2% but so is the participation rate at 62.9%. Inflation related numbers provide no surprises with y/y average hourly earnings remain 2%.
The US was expected to report a gain of around 233K jobs in July after 288K in June (now revised up to 298K), an unchanged unemployment rate of 6.1% and another rise of 0.2% in average hourly earnings, a figure which is gaining more traction. The Fed-watched Core PCE Price Index was expected to rise by 0.2% m/m.
The US dollar continued its momentum towards the report with EUR/USD just under 1.34. The dollar is falling. It then rebounded before a second wave of USD selling came.
Data (updated)
- Non-Farm Payrolls: +209K (exp. +234K, June saw +288K before revisions)
- Participation Rate: 62.9% (62.8% last month )
- Unemployment Rate: 6.2% (exp. 6.1%, June: 6.1% before revisions)
- Revisions: +15K (+29K last month)
- Average Hourly Earnings: 0.0% m/m, 2% y/y (exp. +0.2%, June: 0.2%).
- Core PCE Price Index: +0.1% m/m, 1.6% y/y. (June saw 1.7% y/y after revisions)
- Private Sector NFP: 198K (ADP showed a gain of +218K jobs).
- Real Unemployment Rate (U-6): 12.2% (previous: 12.1%).
- Employment to population ratio: 59% (previous: 59%)
- Average workweek: 34.5 (last month: 34.5).
Analysis and currency reaction
- EUR/USD traded just under 1.34 before the release and is now. Up to 1.3430 and back towards 1.34.
- GBP/USD was on low ground around 1.6830 after the weak UK data. 1.6860 the high and cable returns to where it started.
- USD/JPY traded under 103. The low is 102.60
- USD/CAD was high around 1.0940. Commodity currencies were hit hard. The pair falls to nearly 1.09 before bouncing.
- AUD/USD traded around 0.9275 after losing 0.93 (the reasons). The pair rises above 0.93 but is unable to hold it.
- NZD/USD was near support of 0.8460. It eventually rises above 0.8520.
Quick analysis:
- Underwhelming report allows profit taking, but this doesn’t last too long.
- A 200K+ job gain shows steady growth, but no rush for any change in taper plans
- The small rise in the participation rate is positive
- The rise of the Core PCE Price Index is dollar positive (the rise is in comparison to previously known data, not to June’s big upwards revision).
- We’ve seen interesting action with a fall of the dollar, a rebound and a second move.
Background
As today is the first day of the month, the ISM PMIs were not published, so we don’t have the usual hints for the NFP. However, we saw upbeat PMIs from Markit and low jobless claims in July with a moving average of just under 300K. On the other hand, ADP disappointed by showing a gain of only 218K private sector jobs.
A solid growth in jobs was evident in recent months, especially with last month’s blockbuster +288K and its accompanying upwards revisions. However, the focus gradually shifts from the amount of jobs to what they actually pay: without rises in wages we will not have a rise in core inflation.
That is why both the Average Hourly Earnings component in the BLS report is gaining more weight, and so is the Fed favorite Core PCE Price Index, which is released in a separate report.
All in all, it was an excellent week for the greenback, with GDP growth of 4% (Q2, preliminary, annualized) and despite a lack of strong hawkishness from the Fed.
The preview: Trading the NFP with EUR/USD.
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