NFP A Nightmare for the Fed

What happened? No one seemed to be in the same ballpark when guessing North American job numbers. All the positive signs were there: recent activity indicators such as retail sales, industrial production buoyed investors, and construction spending which all firmed. If we throw in small business hiring plans improving in recent months, and this week’s ADP figures, it is difficult to not to be optimistic. However, both the U.S. and Canada delivered dismal numbers that will have both the Federal Reserve and the Bank of Canada experiencing more restless nights as they attempt to figure out how their respective economies can recapture sustainable economic growth.

The U.S. added just +74k jobs last month, well below analyst expectations of a +200k print, even as the unemployment rate dropped to +6.7%. In fact it’s the lowest monthly gain in three years. The nonfarm payrolls (NFP) report can be volatile, but after two months of +200k, this is a bitter pill to swallow for many, especially all those with long-dollar positions. On a positive note, releases like these bring volatility back to the foreign exchange (forex) market, and with that more opportunities rather than the slow, grinding moves the forex market has become accustomed to of late.

The numbers for October and November were revised upward by a combined +38k, pulling the average monthly gain higher over the past three months to +171, 667, up from +167k during the July to September period. For 2013, the average monthly gains slipped by -1k souls to +182k.

The U.S. December jobless rate fell to +6.7%, certainly eye candy, but the Fed cannot be happy with this as the improvement occurred for all the wrong reasons – namely individuals dropping out of the labor force. The U.S. labor participation rate is now hovering at a 35-year low of 62.8%. The Fed will now be forced to reexamine its plans to wind-down its quantitative easing (QE) program that is in place to keep rates artificially low in order to provide a boost to the economy. Suddenly, this week’s Federal Open Market Committee minutes carry significant weight as a result.

If the U.S. was bad, Canada was horrid, ending 2013 on a grim note. The Canadian economy lost -45.9k jobs, the biggest monthly loss in nine months, and it stopped just short of a two-year monthly record loss. The Canuck’s unemployment rate did the reverse of the U.S. and actually increased to +7.2% from a five-year low of +6.9%. The market was looking for a positive print of +14k new jobs. For 2013, Canada’s employment rate grew at a paltry +0.6%, the slowest pace in five years with a yearly gain of +102k, and well below the 2012 print of +310k. None of this bodes well for the loonie lovers out there. The CAD is expected to sink even lower against the mighty dollar, keeping intact its 2014 trend.

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