Non-Farm Payrolls: Disappointing but not Horrible

The latest non-farm payrolls report indicates that the U.S. labor market remains weak but like a semi truck turning on a highway, it is moving in the right direction. Although the unemployment rate dropped from 10 to 9.7 percent, payrolls, fell by 20k and job losses in November was revised down from -85k to -150k. The jobs data was bad but not horrible because at minimum the pace of job losses is slowing and more importantly the manufacturing sector reported the first month of positive job growth after 25 months of consecutive job losses. Based upon the recent trend of economic data, the manufacturing sector is the leading the service sector recovery. The discrepancy between the payrolls survey and the unemployment report lies in the fact that one calculates their data from payrolls provided by over 390k establishments employing over 45 million people and the other surveys approximately 50k families. As you can imagine, the payrolls survey is usually more accurate than the household survey which releases the unemployment rate. Nonetheless, it is important to acknowledge that the unemployment rate has not only fallen back below 10 percent but is now at a 5 month low. There was also a small uptick in average hourly earnings and average weekly hours which indicate the Americans with jobs are working longer hours and making more money and this implies that productivity is increasing.

The U.S. dollar quickly recovered after an initial spike lower as traders found relief in the encouraging signs within the labor market report. Jobs were found in the government, at retailers, companies offering professional and business services, health and education. As we suggested in our non-farm payrolls preview, the market's forecast was overly optimistic. Most of the labor market numbers released before the payrolls report pointed to an improvement in the labor market but it did not necessarily imply positive job growth - smaller job losses still represented an improvement which is what we saw today. Revisions due to the birth death model also reduced payrolls by 930k jobs between the months of April 2008 and March 2009. Since the recession began 8.42 million Americans have lost their jobs.

Based upon today's number, it is becoming increasingly clear that the U.S. labor market has turned a corner and positive job growth will probably return in February but unemployment remains high which means that recovery will continue to be slow and messy. However in the meantime, despite the revisions and the miss of expectations, the latest report is mildly positive for the U.S. dollar simply because it confirms that the U.S. economy is slowly recovering. After such a deep recession, we can't expect U.S. corporations to just go out and start hiring left and right. The dollar should hold onto its gains against the Japanese Yen