USD Awaits Crucial NFP Report

American employment has been the strongest pillar of the economy with limited exceptions over the past two years.

The recovery of the unemployment rate pressured then Federal Reserve Chair Ben Bernanke as it does the current chair, Janet Yellen. Bernanke and Yellen played down the headline unemployment rate and urged the market to focus on the whole employment picture to reveal underperforming indicators. Wages have not kept up with the number of jobs resulting from the rise of part-time positions, self-employment, and small business employment. It’s difficult to know how solid the recovery really is.

The nonfarm payrolls (NFP) report will be published on Friday, June 5, and it will shed more light into the state of the American economy. Employment data will begin to emerge this week on Wednesday with the release of the ADP nonfarm employment change. This survey of private payrolls is not heavily correlated with the NFP, but it will get the market ready to digest the week’s employment data. The ADP report has underperformed expectations for the past four months. Last month, it printed 169,000 new jobs when expectations were of 199,000. Despite lower numbers the forecast calls for a lofty 200,000. Weekly unemployment claims are published every Thursday. This release has kept the employment recovery narrative going even when the NFP has disappointed. The U.S. has managed to keep its number of new jobless benefits applications under 300,000 for 12 straight weeks. The market anticipates this trend to continue into its 13th week, with a forecast of 277,000.

What Will the Numbers Show?

The March NFP report was a wake-up call when it missed estimates by 100,000 jobs. The U.S. economy added only 126,000 jobs when 246,000 were expected. The next report managed to come in close to expectations at 223,000, but the stumble at the beginning of the year raised questions about the overall economic performance in the first quarter. The stock market and the USD got a breather after being under pressure as the U.S. regained the confidence of the markets. The Fed’s comments about data dependency yet minimizing the effect of the unemployment rate, and the number of new jobs has reduced the impact of the NFP release, but it is still capable of driving the direction of the USD.

The U.S. has struggled to impress markets with one soft economic release after another. The USD is sometimes given a pass when the economy misses the mark just because of the Fed’s verbal intervention or by other central banks that wish to devalue their currencies to gain a competitive edge. The strength of the USD on the guidance of the Fed is tied to economic data. The first quarter took a toll on the economy and employment was one of the few indicators that managed to keep the numbers steady. In order for the USD to regain the price levels of last year, all indicators starting with NFP on Friday have to defy forecasts, and convince the Fed that a rate hike could be made sooner rather than later. Otherwise, more disappointing data will delay that monetary policy decision, or it might make it a token decision if the Fed raises rates later this year but cannot follow through for fear of bringing the economy to a standstill.

Employment events to watch this week:

Wednesday, June 3

8:15 a.m. — USD ADP nonfarm employment change

Thursday, June 4

8:30 a.m. — USD unemployment claims

Friday, June 5

8:30 a.m. — USD nonfarm employment change

*All times EDT

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