September non-farm payroll data was published last week! This report was the final one prior to the election in November, given the political sensitivity of the data.
The consensus expectation was that around 850,000 jobs were to be added in the month of September, versus 1,370,000 jobs added in August. However, the number came out much lower, with around 661,000 added jobs. This recovery has still been historically rapid, albeit the pace is decelerating. With around 141.7 million Americans having a non-farm job, we are near levels last seen in 2015. Unemployment rate came at around 7.9% which was better than the expected 8.2%; however, this is due to lower labor force participation, which dropped by 700,000 people.
Non-farm payroll announcement generally gets a lot of attention from market participants as jobs data is a crucial input for the financial models the Federal Reserve Bank of the US uses for interest rate policy. The more jobs added and the closer we get to full employment, the faster we can expect a rate hike – this is the basics of the Phillips curve. Or at least that was the rationale previously. As you can remember from our previous reports, the Fed has denounced the use of Phillips curve going forward, and hence we may observe less focus on jobs numbers in the future. Having said that, for the time being market participants still focus on jobs data, given the historical number of unemployed people in the US.
Another important indicator of jobs recovery in the States was published this week – ADP employment change. Automatic Data Processing, Inc., is an American company that processes payroll payments for mostly large private US based enterprises. This print came at 749,000 jobs added in September, versus an expectation of 650,000. How does ADP employment change from non-farm payrolls? Firstly, NFP data consists of both public and private sectors, while ADP only counts for private jobs added. Secondly, NFP data is based on surveys, whilst ADP is actual data from payroll files. Notwithstanding the slight deviation, there’s still a strong correlation between the two. Market reaction to both ADP employment change and non-farm payroll data was lukewarm, not to say non-existent as equities, gold and USD barely moved.
The shocking news of the week came from the US as President Trump announced on Twitter that he had tested positive for COVID-19. Needless to say, this introduces another element of uncertainty to the already volatile election period. There are a few scenarios that may play out – Trump’s campaign may try to cancel the Presidential debates in the coming weeks. Or, Trump may become bedridden with the disease as he is part of the risk group. What’s certain is that both Republicans and Democrats will try to capitalize on this development. On Friday US stocks slipped with S&P500 down 1% and Nasdaq 2.2%, while gold was initially down, only to recover the losses by the end of the day.
Please see the below report for a more detailed analysis of key macro and economic events this week!
Have a great trading week ahead!