Non-Farm Payrolls Instant Insight: -524K Jobs Lost in 2 Months

There is nothing good about today’s labor market report – between September and October, 524k jobs were lost in the US economy. Even though last month’s job losses were worse than the market expected (-240k), it was not as bad as everyone had feared. But if you count the big downward revision to the September number, the labor market is in its weakest shape in the past 5 years. What is the most shocking however is the fact that the unemployment rate jumped to 6.5%, the highest level in 14 years.

The manufacturing sector reported a 90k drop in jobs while average weekly hours and the monthly change in average hourly earnings remained stable.

Expect the Fed to respond with another 50bp rate cut this month as the job losses mount.

The bottom line is that the tenth consecutive month of negative job growth confirms that the labor market is in a recession and that the US economy is in trouble. Although we don’t expect the job losses to end in October, we are very close to the -300k level and once we see that number exceeded, the slope or magnitude of job losses will begin to slow.

In the past 3 recessions, job losses have extended beyond 10 months but the largest single month job loss was marginally above 300k. The longest stretch of job losses in the past 30 years was between 1980 and 1982, when we saw 17 consecutive months of job losses. With market caps evaporating and lending still frozen, US companies will continue to tighten their belts and shed jobs.

The reaction in the currency market has been relatively tepid because there was an air pessimism going into the non-farm payrolls number. Everyone thought that NFPs would drop by 300k including myself and when you add the -125k September revision with the -240k October job loss, it has exceeded that number.

As we indicated in our non-farm payrolls preview, a weak NFP number may not permanently stop the dollar’s rise. The dollar is appreciating not because of the strength of the US economy, but because money flocks into low yielding currencies during a global recession. In a very short period of time, the US dollar has become the second lowest yielding G7 currency.

The NFP number should be bearish for US equities today and by extension, USD/JPY and other the Japanese Yen crosses.

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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