It may be lost in all the attention focused on Greece and contagion in the Euro-zone, but tomorrow The Bureau of Labor Statistics will release the April non-farm payroll number. The report is being overshadowed by the sharp sell off in the Euro, a third straight day of sliding US equity markets, and an upcoming German vote on the Greek bailout, which adds up to many cross-currents in the forex markets. However a strong jobs report could help to reinforce the momentum behind the US recovery and give further strength to the Dollar.
March's Non-Farm Payroll Report Strongest Job Gain in Three Years
Coming into this week the expectations for the monthly jobs number was a gain of 176K to 190K. That followed a strong 162K gain in March, with the unemployment rate remaining at 9.7%.
March's report, which showed a job gain of 124K even if you take out Census hiring, showed that the US economic recovery was building enough momentum that businesses are gaining enough confidence to begin hiring. Temp hiring continued to be strong in March with 40.3K temp jobs added to the economy. In January and February temp services rose by 49.2K and 36.7K respectively. Such strong temp hiring should lead to the same workers moving to full time employment. While temp hiring is rising, the number of long term unemployed (those jobless for 27 weeks or more) increased to 414K to 6.5M.
This Week's Labor Market Statistics
Let's examine the labor data we have since March's jobs report. After rising in early April to 484K level weekly jobless claims have fallen back down recently with today's release showing a decline of 7K claims for the week ending April 24th.
We see from this chart of claims data that the gray line has moved back below the 450K level. That bodes well for the non-farm number.
Second, we saw the private sector ADP employment change rise by 32K for April, a figure that was better than the expected reading of 25K. In addition revised data showed that the private sector added 19K jobs in February, compared to the decrease of 23K originally reported, and January's figure was revised to small 3K gain. While modest, we did have three straight months of hiring.
In this chart we see that the labor market, after a year of decelerating losses in jobs, is finally turning the corner and adding jobs. The increase in the April ADP report suggests a stronger reading from the private-sector in Friday's BLS report.
Third, the Challenger Jobs Cuts report showed that layoffs declined by 43% last month to the lowest level in four years.
The three labor market reports this week therefore signal that the non-farm report should be as strong or better than what we saw in March.
Impact on the Dollar
If we see a positive report, the impact should be positive for the US Dollar. We are already trading at 14-month high for the greenback against the Euro as the Dollar has benefited from safe-haven flows as a result of the contagion risk of the Greece debt crisis. The Dollar is also benefiting from strong economic data, including manufacturing at its best levels in six years, the housing market printing strong sales numbers, and consumer spending showing improvement. A strong jobs report would reinforce the theme that the US economy's recovery is gaining momentum and that it could pressure the Fed to move up the timetable for tightening its monetary policy. This is in sharp contrast to the risk to the EU recovery from the sovereign debt crisis. Therefore growth and yield differentials are favoring the Dollar in this scenario.
If we see a weak non-farm payroll number, say below 130K, it could dampen the enthusiasm around a strong US recovery and would likely cause a knee-jerk reaction against the Dollar. However, with the strong pressure on the Euro any sell-off would likely be short lived.