March Non Farm Employment Report Tomorrow
Release time: Friday, April 3, 2009 – 8:30 AM ET
Employment is widely believed to be a lagging indicator, so traders often look to wider economic announcements to try and gauge overall economic sentiment. However, traders continue to be assailed by good, bad and “less bad” news announcements from all sides and making sense of the markets at the moment may prove to be difficult. The bad news is highlighted by the ADP report, “less bad” includes the February sales reports from GM and Ford and the decreasing speed of the rate of decline of the Case-Schiller’s index, and the ISM report falls in the good category. Another important potential equity market mover to track will be the Financial Accounting Standards Board (FASB)’s vote on the major changes proposed in the mark-to-market rules.
ADP’s report increased analysts worry about economic expectations being overly optimistic. The national employment report released on Wednesday caused a stir when it announced that private sector employers cut 742,000 jobs from payrolls in March and revised the February job loss figures upward from 697,000 to 706,000. Despite headlines to the contrary, ADP reported that the largest number of job losses did not come from large employers. Joel Prakken, chairman of Macroeconomic Advisors LLC stated, “Despite some recent indications that stock prices, consumer spending, and housing activity may be bottoming, employment, which usually trails overall economic activity, is likely to remain very weak for at least several more months.”
In contrast, the recent US manufacturing activity release appears to show a potential slowing of the contraction. The manufacturing output shrank again in March, for the 14th consecutive month, but the ISM index rose from 35.8 to 36.3. That is slightly more that many economists were expecting and the sub-index for new factory orders rose to the highest level since August last year, giving stock markets a little boost on Wednesday.
Though the US housing market continues to decline, Robert Shiller, co-creator of the Case-Shiller index and a professor of economics at Yale University offers a small ray of hope. The decreasing speed of the rate of decline is something to monitor. But, he added. “I don’t read too much into it yet.” Other housing price indices have been offering some positive indications for home price stability as well. The National Association of Realtors’ initial estimates of home prices in February showed prices remaining virtually unchanged from January to February, after falling 15.5 percent on the year.
For week ending March 28, the Labor Department reported that the advance figure for seasonally adjusted initial claims was 669,000, an increase of 12,000 from the previous week’s revised figure of 657,000. They also reported a four-week moving average of 656,750, an increase of 6,500 from the previous week’s revised average of 650,250. The number of long-term unemployed has increased 270,000 to 2.9 million and the number of persons who worked part-time for economic reasons jumped 787,000 to 8.6 million. When you add the increase in the number of discouraged workers (up 335,000 from a year ago) and it all adds up to underscore the difficulty of finding a new job in the current employment environment.
This Friday’s news releases are expected to deliver more bad news.
- Experts and analysts are predicting a loss of 650,000 to 670,000 jobs
- The average work week is expected to hold steady at 33.3
- The unemployment rate is expected to rise to 8.5%, from 8.1%
- The rising unemployment rate and high level of nonfarm payroll declines (their highest in February since Oct 1949) are expected to keep consumer spending low which drives GDP.
What is the NFP report?
Of all the world monthly economic reports, the monthly U.S. Non Farm Report (NFP) is the most highly anticipated and has the most dramatic impact on the currency market.
The report, which is released on the first Friday of each month and states the previous month’s numbers, provides detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. In our opinion, these numbers are the best way to gauge the current state of the US market as well as the direction that the economy is heading.
What’s more, the employment numbers provided by the report are used by the Fed to shape their interest rate policies. The health of the U.S. economy and interest rates translate to the strength or weakness of the U.S. dollar.
Risks Associated with Trading Off-Exchange Retail Foreign Currency During Economic News Announcements
As with all major economic releases, there could be significant price volatility with this announcement. Currency spreads will typically widen just before the release and will remain wide for a few minutes after. If the announcement is a shock to the consensus estimate, the price of the currency pair could gap significantly. For example, the price on the EURUSD trading at 1.2820 - 1.2822 just before release could gap up 60 pips to 1.2880 - 1.2882, without any available prices available between the price of 1.2820 and 1.2882. A Buy Stop placed before the announcement at 1.2830 would turn into a Market Order and would be filled at the prevailing price 1.2882. The same would be true with a Sell Stop.
Approximately four years ago we saw a gap of approximately 200 pips on the GBPUSD on a Non-Farm Payroll announcement. While this is an extreme example, it nevertheless is a possibility with trading during economic announcements. Consequently, plan on the spreads widening and, if you are trading with a Buy or a Sell Stop entry order, do not anticipate being filled at your entry price. You will be filled at the prevailing market price after the release, which could be significantly different from your desired price of your entry order.
