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What to Make of September 2020 NFP Report

Posted: Tuesday, October 6th, 2020

Estimated Reading Time: 2 minutes

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Another month passed by, another NFP report showing a mixed picture of the U.S. labor market. The NFP (Non-Farm Payrolls) is one of the most-watched reports from the United States, released every first Friday of the month.

The September NFP report had particular importance – it was the last jobs report of the third quarter. Moreover, six months have passed since the COVID-19 virus reached the Western world, and all eyes are on how the economies cope with it.

The NFP data last Friday showed a mixed picture. As always, traders must focus not only on the main headline but also on details. For example, is the unemployment rate confirming the NFP headline? How about previous data revisions? Or what about permanent unemployment when compared with temporary layoffs?

NFP Report

Details of September NFP Report

The NFP headline missed expectations.  On 900k new jobs expected, the U.S. economy created only 611k jobs.

The initial market reaction was to sell the USD. Such a reaction makes sense because trading algorithms buy or sell the USD on interpreting the actual vs. the forecast numbers.

However, the USD quickly reversed the initial move. Moreover, towards the end of the trading day last Friday, it closed the week at the highs against most fiat currencies in the developed world.

The Good Parts of the NFP September Release

First, the Unemployment Rate dropped much more than expected. It fell below 8% for the first time since April, on expectations of 8.2% and previously 8.4%.

The Unemployment Rate always comes out together with the NFP report. Therefore, market participants view it as part of the report, and they often interpret the two together.

Second, both August and July NFP numbers were revised higher. In total, for the two months, the U.S. economy added another 140k jobs, offsetting much of the disappointment created by missing the expectations in September.

The Bad Parts of the NFP Report

One of the worrying things about this NFP report (and of the previous ones) is that the permanent unemployment keeps trending higher. In fact, since the coronavirus-triggered recession, eleven million jobs remain lost. That gap is unlikely to get filled anytime soon. Moreover, when compared to the previous recessions, the number of permanent job losses is rising faster.

To sum up, one may conclude that last Friday’s report offered a mixed picture. It shows that the recovery continues, albeit sluggish and uneven.

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