What a disappointment. The US Non Farm payrolls report, the last before the next FOMC monetary policy statement at the end of this month (October) was expected by all commentators to show that 200k or so more jobs had been created in the US in September. Not only did it miss the target by a substantial amount, coming in at 142k new jobs, but it also indicated that average wage growth per hour in the US did not have the small amount of growth that had been evident in previous reports. This last is important, because it has a bearing on whether or not a rise in inflation to the Fed target of 2% is on the cards.
All of these factors will make interest rate rises less likely this year. The knee-jerk reaction of the currency market was to mark down the dollar, causing the EURUSD pair to rise on the release (see chart).
… but the Forex market is not convinced
However, this did not last. We have pointed out previously that the members of the Fed who decide on interest rate rises are not likely to be bound by one data point, no matter how dramatic it is. They will be studying the trend, and the trend in employment creation is not falling. In fact, this report could be seen as an indication the labour market in the US has improved to the extent that there is less in the way of additional capacity for employment.
Significantly, the employment rate remains the same as it was, at 5.1%. This has fallen steadily since Sept 2013, when it was at 7.2%. The participation rate has dis-improved, but it has long been pointed out that this could be due to the large numbers of so-called ‘baby boomers’ that are now retiring and leaving the labour force. Unemployment claims are still down and consumer spending is still up.
All-in-all, the jury is still out on an interest rate rise this year. Friday’s Non Farm Payroll report only means that more tension, not less, will precede the next monetary policy statement.