The most recent US Nonfarm Payrolls (NFP) data showed a miserable net gain of just 73,000 jobs in July. This is a far cry from the expected 110,000 jobs. This underwhelming report, released on the first Friday of August, has sent shockwaves through financial markets, prompting investors to focus on substantial downward revisions to previous employment figures. The combined revisions for May and June amounted to a staggering loss of 258,000 jobs, raising concerns about the overall health of the US labor market.
The workforce environment is changing at an unprecedented pace. Consequently, investor sentiment is becoming increasingly bearish, and this week’s disappointing jobs figures have particularly weighed on the USD. The currency plunged 1.5% almost immediately after the NFP data dropped. This decline demonstrates the increasing alarm over a slowdown in job creation and what that means for future economic growth.
Disappointing NFP Data
Last month’s NFP report for July certainly sent shockwaves through economists’ and market analysts’ expectations. The conditions represented a stark reversal from projections, delivering the biggest plunge in recruiting activity yet. So it makes sense why policymakers are so focused on shifts in payroll numbers. This key economic measure is a direct representation of how well the economy is doing right now.
The 73K job increase was a complete reversal of May and June expectations and continues to show an alarming trend in the labor market. The changes to previously months’ data only add to that concern. As the OECD points out, job losses in May and June have reported benefitted by a combined 258K. This skepticism has driven them to raise concerns about the durability of the current economic expansion.
“US NFP figures came in below expectations in July, sinking to 73K versus the expected 110K.” – Economic Analyst
Everyone knows the volatility that comes with monthly payroll swings. This month’s data just looks especially bad. As hiring slows and data revisions suggest zero job growth, investors are looking at the optimistic scenario with trepidation.
Market Reactions and Currency Fluctuations
Following the weak NFP news release, the US Dollar took a steep tumble against most other major currencies. This decline was most sharply felt against the Euro and British Pound. Strong buyback supported the EUR/USD pair which shot above 1.1550 as risk appetite improved towards Euro zone considering the pale US jobs report.
GBP/USD went to the upside, moving above 1.3250 as market participants responded to the pressure on the USD. The Canadian Dollar (CAD) joined the party and broke lock-step weakness, falling below 1.3800 vs. USD. This change out of the blue follows after the American greenback had its sixth day of positive aspects in a row.
“USD/CAD has been pushed back below 1.3800 following six straight days of USD gains.” – Market Strategist
The CAD faced mixed swings until the loonie finally gained ground against the faltering Greenback. Though it did at least cut some losses, it was still hurtling towards the. It’s now down sharply. All of this highlights just how jittery currency markets have become to labor data prints and other key economic releases.
Implications for Gold and Treasury Yields
The consequences of soft NFP data spilled over into commodity markets as well, especially gold prices. In the wake of the report, gold prices moved up to new weekly highs just above $3,350. The decrease in US Treasury bond yields lit the fire for bullish momentum on gold. Now, investors are recalibrating what they thought they knew about interest rate policy at the Federal Reserve.
Weaker employment data is leading to lower yield expectations. Consequently, gold is increasingly appealing to a broad range of investors who want to hedge against economic malaise. The tug-of-war between the labor statistics and the FOMC’s influence over monetary policy, crafted by the financial markets sentiment, rages on.
President Donald Trump is not the first U.S. president to sail through economically choppy seas. After Friday’s NFP rout, he came under attack for his decision to fire the head of the Bureau of Labor Statistics’ labor data department. This step has received a tornado of criticism since it has come amid and in response to calls for interest rate cuts as the economic situation deteriorates.
“Despite getting his wish for the economic conditions that could spark interest rate cuts from the Fed, President Donald Trump fired the head of the Bureau of Labor Statistics’ labor data department following Friday’s NFP rout.” – Political Analyst