Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Weak US Payrolls - Goldlilocks to Feel the Chill

Economics / Analysis & Strategy Feb 03, 2007 - 12:43 PM GMT

By: Ashraf_Laidi

Economics Just as the term "Goldilocks" becomes the latest buzz in economic headlines, the real data are gradually leaning to the softer side, allowing Goldilocks to finally feel the cold as more seasonal temperatures start to erode the aberration from abnormally warm weather. But it is not all about weather. The FOMC has finally reduced its preoccupation with inflation at the same week when manufacturing indices dropped back into recessionary levels. The stronger than expected advanced Q4 GDP tells an incomplete tale on a quarter that is already behind us. Softer than expected payrolls and rising unemployment rate both merit closer scrutiny.


The softer than expected reading in the February payrolls triggered short-lived declines in the US dollar, until the currency reversed its losses on rumors that the European Central Bank is considering halting its tightening cycle after an expected move in March to 3.75%. Eurozone interest rates are currently priced for two 25-bp rate hikes to 4.00% by year-end. The reports suggest the ECB could pause for months after a March rate hike as it faces uncertainty with Germany's VAT hike. EURUSD plummeted by a full cent (from 1.3064 to 1.2965), USDJPY lifts from 120.65 to 1213.30 before stabilizing at 121.

US payrolls were revised higher by a total of 933K last year, while the November and December figures were revised up by a net increase of 81K. The unemployment rate rose to a 4-month high of 4.6%, while average hourly earnings edged up 0.2% m/m and 4.0% y/y. Setting the annual revisions aside, manufacturing shed a net of 16K jobs following a drop of 18K in December, posting the 7 th straight monthly net loss. Service jobs saw the net increase in payrolls cut by half to 104K, the lowest reading since October 2005. Retailers created a net increase of 4K jobs after a drop of 14K, while professional and business services, education/health and government jobs all saw slower job creation.

The chart below shows the 3-month average for payrolls in manufacturing, construction and services, with the former two showing some signs of stability while services weakening. It is unclear to what extent were the two monthly increases in construction jobs attributed to warm temperatures. But the chart below, shows that the deterioration in US manufacturing continues could raise reasons for concern in the event of prolonged increase in oil prices.

As the unemployment rate hits a 4-month high at 4.6%, and sector payrolls weaken further, the onset of incoming rate cuts can be closer than is perceived-- particularly given the Fed's past inclination to cut interest rates at times of rising jobless rate . Although market liquidity remains ample-despite the increase in real interest rates and the unemployment rate, global liquidity can be reduced by events such as unwinding of carry trades and a gradual run up in rate hike expectations in Japan.

A 4.7% unemployment rate later this quarter should be a strong signal of an incoming rate cut, as early as May. After all, the Fed finally succumbed to the latest evidence of softer inflation figures and reduced its preoccupation with price pressures. Meanwhile, with both the Chicago PMI and ISM manufacturing in contraction territory at 4-year lows, the goldilocks economy may be starting to feel cold as markets get over the aberration of unusually warm temperatures.

By Ashraf Laidi
CMC Markets NA

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in