Nonfarm Payrolls (NFP) have surpassed forecasts in the previous eight months.
The NFP rarely meets expectations and frequently defies reality.
Job growth above pre-pandemic levels cannot last forever.
Higher interest rates and inflation have had an impact on the housing market, and possibly the labour sector as well. Nonfarm Payrolls (NFP) have exceeded expectations for the past eight months; therefore, a further upward surprise cannot be ruled out.
On Friday, January 6, at 13:30 GMT, the US Bureau of Labor Statistics (BLS) will issue the US jobs report for December 2022. The Federal Reserve (Fed) is now discussing whether to tighten monetary policy, making this the first major release of 2023 and a significant one. There are three possible outcomes, as outline below.
۔The NFP might meet expectations at around 200,000
The 200,000 increase predicted by experts would be smaller than the 263,000 reported for November, but would still represent a robust expansion of the job market. Prior to the pandemic, the United States consistently added around 200,000 jobs per month.
Despite the fact that such expansion would be good for workers, the Fed would deem it excessive given the current tight labour market. In such an “as expected” scenario, markets would fluctuate, and the US Dollar may strengthen due to uncertainty over the Fed’s future actions.
The US Dollar is a safe haven currency. However, many investors would likely wait until next week’s critical Consumer Price Index (CPI) report to make big trades. Following the initial knee-jerk reaction, the dollar’s gains would be reversed.
The NFP rarely meets expectations and frequently defies reality. Therefore this eventuality has a low probability.
The optimistic scenario is another report of 250K+.
Data from Nonfarm Payrolls, weekly jobless claims, and JOLTs job vacancies indicate that the American labour market is solid. Currently, there are 1.7 available vacancies for every candidate, and the labour shortages show no indications of abating. This is the rationale for expecting a stronger-than-expected NFP.
Nearly all of 2022’s main Nonfarm Payrolls announcements exceeded expectations. After the single miss in March, eight straight reports have surpassed expectations.
As was the case in October and November, the continually low weekly claims figures for unemployment imply another positive report, exceeding forecasts of a gain of almost 200,000 jobs.
The bleak possibility, below 100,000 or perhaps worse.
If the United States announces a growth of fewer than 100,000 jobs, or perhaps a loss of jobs, the Dollar will fall and equities will climb in anticipation of an early finish to the Fed’s tightening cycle. Prices would change rapidly without waiting for inflation statistics. As a result, more focus would be placed on jobs.
This possibility is very likely because job growth above pre-pandemic levels cannot last forever. The final Nonfarm Payrolls data for 2022 will be important for the Fed’s upcoming meeting, (January 31 – February 1).
Adnan Abdul Rehman
Regional Market Analyst