Non-Farm Payrolls Falls 467K, Still Following 80's Trajectory

A total of 467k Americans lost their jobs in the month of June, driving the unemployment rate to a fresh quarter century high of 9.5 percent. The jobless rate was better than the market expected but the total number of job losses was worse. The dollar rallied after NFPs on the fear that the trend of larger job losses is returning. However after the dramatic improvement in May, it is natural to see an increase in job losses especially with layoffs at GM and Chrysler. Government jobs were also cut by 52k which means that private sector payroll reductions represented only 415k jobs. What does concern us is the flat growth in average hourly earnings and the decline in weekly hours because it suggests that companies are reducing working hours and cutting pay.

Yet the increase in job losses last month does not necessarily mean that we will return to the steep downward slope in 2008. No one ever said that the path back towards positive growth will be a smooth one. In the 1980s, before job losses turned into job growth, there were many hiccups along the way. At the time, we moved 2 steps forward and 1 step back which could be the current trend for payrolls as well. In fact, even with today's dip in NFPs, the following chart comparing current job losses to the 1980s recession is eerily similiar (X axis: 1 equals the first month of job losses).

The important thing to remember is that job losses are still well off their January 2009 high of -741k and as long as we stay below 500k job losses, the the labor market and the U.S. economy is still moving in the right direction. Therefore even though the dollar has extended its losses, we could still see a reversal.

The initial move in the EUR/USD following NFP is rarely the one that lasts for the rest of the trading day. Six out of the last six times non-farm payrolls were released, the knee jerk reaction was quickly erased. There is no reason why it cant happen again. Also keep an eye out for market moving comments from ECB President Trichet, which could add further volatility to the EUR/USD.

EUR/USD; Intraday move following payrolls report in June

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