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What is the Payrolls Report?
The Nonfarm Payrolls report is released monthly and contains a whole host of data about the labour market in the US. Through the pandemic for a time it was less important, but generally it is a critical and highly watched piece of data. The employment report is likely to shape the Fed's reaction function from now on, unless inflation becomes even more persistent. The report is release on the first Friday of the month at 08:30 ET (that's 13:30 UKT).
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What's Expected?
Economists are currently predicting an increase of 480,000 jobs for the month of March. This would be down from the prior month's stellar gains of 678,00. However, that kind of number was clearly unsustainable, so there's little evidence of this being bad for the economy.
Private Payrolls data released Wednesday showed an increase of 455,000. Note, however, that the ADP report is a notoriously unreliable indicator for the NFP report. I mean, ADP hasn't even accounted for all of March when published.
What is particularly interesting is that there were big NFP beats in both January and February. This probably means that economists are raising their expectations to avoid being caught on the downside again, and this could well lead to a significant miss in the report on Friday.
NFP Reports Recently - Trading Economics
Note, these gains are significantly higher than pre-pandemic levels, where an NFP report would typically see 200k jobs added in a given month. Thus, the pace of job gains continues to be remarkable.
Don't forget... the payrolls report is both complex and multi-faceted. Key will be the unemployment rate, participation rate and the revisions to the previous months. I have stressed this in recent reports - it pays to be careful.
The participation rate, for example, has been ticking up higher quite quickly in recent months, and a continuation of this trend could easily lead to a rise in the unemployment rate if the hiring rate slows at all. These kind of situations could start to complicate the Fed narrative, although the inflation objective is so clearly dominant at the moment that I suspect little can derail 50bps at the next meeting... beyond that, who knows.
What do I expect?
As already mentioned, the consensus has been too low for the last couple of payrolls reports, so I wouldn't be surprised at all if the tables turned back for this meeting. I personally wouldn't be surprised to see a miss with a print like 250k. This would be pretty sharp and probably lead to a stint of USD weakness - especially if we see a corresponding uptick in the participation rate.
If we don't see an outright miss, I wouldn't be at all surprised to see some significant downward revisions to prior months.
What's the trade?
For me, the USD is already priced for perfection in terms of Fed hikes, so any kind of miss looks like a sign for USD weakness to me. As mentioned at the start though, the focus is all on inflation and not so much on employment. Last month, we had a 0% change in Average Hourly Earnings, which I thought was interesting... if we see the same again then it could really be indicative of wages being squeezed by inflation, but again this is a complex dynamic affected by severe wage pressures in some sectors and not others.
The trade for me is to be long GBPUSD into the meeting. The £ has been under significant pressure in recent weeks, and I think the £ has a better chance for gains than the Euro following the meeting. Likewise, with a number of risks out of the way for the £, it seems likely to me that we have room to consolidate a bit and make way for a leg higher toward 1.34. After the release of the report, I do think there could be a quick retracement as the market realises this report is not important for Fed policy, but either way, I'd rather be short USD than long going into this report.
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