US NFP Employment Shock – What a Miss!
News
|
Posted 06/02/2023
|
11186
Fridays US Non Farm Payroll employment print for January was a huge miss. Forecasters missed by a whopping 179%, forecasting 185,000 new jobs verse the actual data of 517,000. To say this was a big shock we think is a little overstated, as previous misses have been just as large. In fact in January 2022 the miss was even bigger, this led to a year rally in the USD, which up until October 2022 seemed unstoppable – so will the force of the USD continue in 2023? More of a shock is the decrease in employment rate to the lowest since 1969 to 3.4%, however interestingly the wage growth dropped from 0.4% in December to 0.3% in January – a curious outcome to such a strong NFP report.
In the aftermath, gold dropped $60US per ounce with the Aussie dollar dropping nearly 1.5c buffering the fall in AUD gold.
Today we investigate what this will mean for the Gold, which usually performs well against a falling USD and of course what this means for the RBA on Tuesday.
USD Strength to continue?
The last time forecasters got it this wrong was January 2022, after which the USD index, DXY, climbed from 95 -115, pummeling all other worldwide currencies and driving inflation out of the US and into the rest of the world.
Monnth
|
Forecast
|
Actual
|
Miss
|
% Miss
|
Jan-23
|
185000
|
517000
|
332000
|
179%
|
Dec-22
|
200000
|
223000
|
23000
|
12%
|
Nov-22
|
200000
|
263000
|
63000
|
32%
|
Oct-22
|
200000
|
261000
|
61000
|
31%
|
Sep-22
|
250000
|
263000
|
13000
|
5%
|
Aug-22
|
300000
|
315000
|
15000
|
5%
|
Jul-22
|
258000
|
528000
|
270000
|
105%
|
Jun-22
|
267000
|
372000
|
105000
|
39%
|
May-22
|
328000
|
390000
|
62000
|
19%
|
Apr-22
|
391000
|
428000
|
37000
|
9%
|
Mar-22
|
477000
|
431000
|
-46000
|
-10%
|
Feb-22
|
400000
|
678000
|
278000
|
70%
|
Jan-22
|
150000
|
481000
|
331000
|
221%
|
Dec-21
|
400000
|
199000
|
-201000
|
-50%
|
Nov-21
|
450000
|
531000
|
81000
|
18%
|
Oct-21
|
550000
|
210000
|
-340000
|
-62%
|
Sep-21
|
750000
|
235000
|
-515000
|
-69%
|
Aug-21
|
750000
|
235000
|
-515000
|
-69%
|
Jul-21
|
870000
|
943000
|
73000
|
8%
|
Jun-21
|
700000
|
850000
|
150000
|
21%
|
May-21
|
650000
|
569000
|
-81000
|
-12%
|
Apr-21
|
978000
|
266000
|
-712000
|
-73%
|
Mar-21
|
182000
|
379000
|
197000
|
108%
|
*Source: Non-Farm Payroll Dates 2023. - Forex Education
![](/root/NewsArchive/Images/2023/2/06feb2023-image01.webp)
Source: Tradingview DXY
So will the strength in the USD reverse its current trend and recommence its rise, or is this likely a NFP blip that will be challenged differently this time by other International Central Banks. We discuss below a few reasons this time is different:
- Worldwide Inflation Differential
- Dedollarization
- Demographic Dynamics
Worldwide CPI Differential compared to the US
In January 2022 the US “transitory” inflation was significantly higher than other countries and regions in the world, the miss in NFP was arguably even worse than Fridays’ but at the time the US had inflation of 7.5% and an average differential to Australia/Canada/Japan and the ECB of 3.65%.
COUNTRY/Region
|
Jan-23
|
Sep-22
|
Jun-22
|
Mar-22
|
Jan-22
|
Australia
|
8.4%
|
7.3%
|
6.1%
|
5.1%
|
3.9%
|
Canada
|
6.3%
|
6.9%
|
8.1%
|
6.7%
|
5.1%
|
Japan
|
4.1%
|
3.0%
|
2.4%
|
1.2%
|
0.5%
|
ECB
|
8.5%
|
9.9%
|
8.6%
|
7.4%
|
5.9%
|
US
|
6.5%
|
8.2%
|
9.1%
|
8.5%
|
7.5%
|
*Source Trading Economics
Country/Region
|
Jan 22 Differential US
|
Jan 23 Differential US
|
Australia
|
-3.60%
|
1.90%
|
Canada
|
-2.40%
|
-0.20%
|
Japan
|
-7.00%
|
-2.40%
|
ECB
|
-1.6%
|
2.00%
|
AVERAGE
|
-3.65%
|
0.33%
|
*Source Trading Economics
This time the interest rate differential now sits at a positive 0.33% meaning the rest of the world has more to go in interest rises to tame inflation than the US. Now of course the US employment figures where they are will put continued pressure on US inflation. However, in contrast, the least impressive number from the NFP report was the wage growth, sitting at 0.3% in January. This is a keenly watched figure for the Fed and will help the case for a moderation of inflation for the US.
Dedollarization and International Escalations
The dedollarization trend that has led to a record 417tonnes of gold purchases by Central Banks (although a massive understatement according to sources) will continue. After the weaponisation of the USD against Russia and increased global tensions, countries like Saudi Arabia, China and India don’t want to find themselves in the same predicament as Russia has found themselves, so in order to protect their interests, have been searching and succeeding in finding alternative trading means.
PetroYuan, gold and even the Indian Rupee have began bypassing the USD intermediate trading mechanism.
As the Ukranian conflict looks to enter the 2nd year, this trend is unlikely to change and fears remain that more countries may enter into similar conflicts. After the weekend’s news of an escalation in relations between China and the US with the shooting down of a ‘spy’ or ‘weather’ balloon depending on who you believe the dedollarisation trend appears to be escalating not reducing…
Demographic Dynamics
Although the unemployment rate in the US dropped to a low not seen since 1969, when delving into the numbers some key issues are laid bare. The US has still not recovered from the enormous participation rate drop seen during the Covid pandemic. With the current participation rate still a full percentage point behind pre covid levels (62.4% vs 63.4%) there is still room for a low unemployment rate before this corrects. In fact, putting it a different way, a lot of baby boomers have started hitting 65, there are now some boomers aged 66. However if living costs due to inflation or interest rates continue to rise, they have the ability to reenter the workforce. This may in fact be feeding into the lower than expected wage increases, being well behind CPI and in a very comfortable area for the Fed to reconsider future rate rises. This demographic dynamism playing out now is another very real consideration for the world’s Central Banks as they decide whether to continue with these supersized rate rises.
What will the RBA do on Tuesday?
We spoke last week about the tight spot that the RBA has ended up in due to the January rate cycle announcement being missed, even though the US calendar often allows for less regular meets, the January miss means that the RBA has not had the opportunity to raise rates as quickly as other countries at this time of year.
Last Tuesday’s Fed announcement of only a quarter of a point rate rise gave the RBA the opportunity to breathe, the dovish Lowe would only need to follow suit. This all changed on Friday and without an aggressive change in policy from the RBA or a stronger than anticipated rate rise, the Aussie dollar may find itself falling back against the USD and therefore moving that US inflation back to us again… The logical move for the RBA is to go hard now maybe a 0.4% rise putting us back on the regular 0.25% increments, since the covid 0.1% emergency rate, we’ve never adjusted the 0.15% irregularity. Now this doesn’t sound exciting for anyone with a mortgage – maybe call your bank tomorrow and see if you are able to negotiate some points off your mortgage – because if the RBA doesn’t shock the market, the AUD will sink again against the USD and we see ourselves again in an inflation spiral imported from the US strength that may mean even more interest rate rises into the future.
As always with currencies there are competing forces and no simple solution for the very central banks that got us into this mess. But any assumption that the USD will continue to fall took a big hit Friday night and our RBA has a big decision tomorrow. While they keep trying to support their pretend Fiat money, real money in the form of gold and silver look like very solid propositions right now.
Gold Prices where to from here?
We have spoken about the AUD buffering any gold or silver weakness and there has been significant weakness in the last couple of days, exacerbated by NFP data. But the fundamentals haven’t changed yet – inflation/rate rises continue, demographic jobs data continues to play with traditional models, China has opened up, dedollarization continues - all supporting commodities and gold into a boom market.