Non-Farm Payrolls Improve!
By Mike Conlon | September 3, 2010

This morning, the US Non-Farm Payrolls report was the catalyst that has pushed the market higher as all eyes were glued to this news. The report came in better than expected, showing that payrolls decreased 54K vs. an expectation of a loss of 105K, but 67K private sector jobs were added. The unemployment rate came in at 9.6%.

While these numbers are far from excellent, the news that they were not worse than expected is seen as an encouraging sign that the economy here in the US may not be as bad as was previously thought. The major challenge that the US economy is facing is how to put people back to work.

Employment sparks the cycle of spending, consumption, then growth. The US consumer represents roughly two-thirds of US GDP; so if people are out of work they are not spending which reduces growth.

And while one reading does not make a trend, this is an encouraging sign after all of the doom and gloom experienced last month. However, we still have a LONG way to go with regard to the employment picture, as roughly 200K jobs added a month are needed just to keep pace with new entrants into the workforce. So before we get too excited, let’s remember that the overall figure is still a LOSS of jobs. The fact that private sector job increased is the most positive take away from this report.

There is a dearth of news from around the globe, and the market is most definitely in risk taking mode.

In the forex market:

Aussie (AUD): The Aussie is higher this morning as risk appetite has increased. A report out of Goldman Sachs said that the RBA could begin raising rates again in November.

Kiwi (NZD): The Kiwi is also higher on risk appetite and the lack of news has it trading on risk themes.

Loonie (CAD): The Loonie is also higher on risk appetite as oil prices have rebounded from earlier lows and are back above $75. In addition, the Loonie has been beaten up pretty badly of late as the negative news of last month has mostly been coming from the US economy.

Euro (EUR): The Euro is trading mixed this morning, mostly lower against the commodity currencies but higher vs. Dollar and Yen. Euro zone PMI figures came in slightly better than expected but retail sales for the month were lower by .1% vs. an expectation of a gain of .2%.

Pound (GBP): The Pound is catching a nice bounce today from risk appetite as austerity measures have affected recent economic data to the downside. So the Pound has been weaker of late, yet the UK economy still appears to be on the right track. However, PMI figures came in less than expected.

Dollar (USD): The Dollar is weaker this morning as risk appetite due to the NFP report has been seen as encouraging. Much of the negative economic news in the global economy has been coming from the US, so a better than expected report is viewed as positive.

Yen (JPY): The Yen is weaker across the board as risk-taking has discouraged demand for safe havens. The Yen has been strengthening of late as the market is testing the resolve of policy-makers to intervene in the currency.

The obvious driver of markets today is the Non-Farm Payrolls and the better-than-expected result has encouraged risk appetite. Not to be a “Debbie Downer”, but this number still needs to improve immensely before we get back to normal.

Perhaps economic policy will change to further encourage business and hiring, but at this point I don’t see it happening as quickly as it needs to.

Happy Labor Day to All!

Mike Conlon

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