NFP Quick Analysis: 701K jobs lost only the tip of the iceberg, King Dollar ready for coronation?


  • The US lost 701,000 jobs in March, the worst in 11 years. 
  • The Non-Farm Payrolls figures are lagging the fast-moving events.
  • Wage growth is also skewed and should be ignored. 
  • The safe-haven dollar has room to rise. 

"Like a hurricane hitting the whole country" – one of the reactions to the Non-Farm Payrolls report that showed a loss of 701,000 jobs, seven times worse than expected. The unemployment rate jumped from 3.5% to 4.4%, also worse than expected. It is the worst report since March 2009.

The bad news – related to the coronavirus outbreak of course – may be only the very beginning, the tip of the iceberg. The Bureau of Labor Statistics (BLS) said that the news predates the layoffs, as we already know. 

Follow all the Non-Farm Payrolls updates live

The most significant fact about this jobs report is not a novelty – the government conducts its survey on the week including March 12. That is three weeks ago – ages in the era of COVID-19. Jobless claims for that week jumped to 281,000 from the previous week. However, they leaped to 3.283 million in the following week and soared to 6.648 million in the week ending on March 28. 

That implies that the job losses were already expected to be modest. Revisions for March may already show a loss of some 10 million jobs – but that will have to wait for April's NFP, due out on May 8. 

And April could already show a loss of over 20 million – according to Carl Riccadonna of Blomberg – and his estimate does not sound farfetched given the disastrous jobless claims. 

Wage growth may also be misleading. Many positions were lost in retail and leisure jobs which are relatively low-income ones. Apart from essential workers, those clinging to their jobs are people that can continue performing their work from home – higher-paid workers. 

Why the dollar is set to rise

While the robust salary figures support the dollar in the immediate aftermath, such an artificial bump was well-known and is not the real upside dollar driver. 

The greenback is enjoying safe-haven flows. When the US economy sneezes, the rest of the world catches a cold. That adage, which can be paraphrased to coronavirus days, is as relevant as ever. When the world's largest economy is suffering – and even if the data does not fully reflect it – other areas of the globe are likely to endure worse pain. The result is that investors are flocking to the safety of the dollar, the world's reserve currency. 

That phenomenon will likely last. The sell-off in the greenback was driven by the Federal Reserve's open-ended Quantitative Easing program and the government's $2.2 trillion fiscal package. However, that was last week – and as mentioned, events are moving fast. These actions prevented a financial crisis, but are not enough to mitigate a domestic recession, nor a global one. 

Eurozone Purchasing Managers' Indexes hit historic lows, the UK is struggling to cope with the disease, and Japan is nearing a lockdown it has refrained from. All the underlying currencies – including the safe-haven yen – are prone to falls. Commodity currencies – perhaps except the Canadian dollar which enjoys the bounce in oil prices – are also vulnerable to falls. 

The ISM Non-Manufacturing Purchasing Managers' Index, due shortly, will likely show a collapse in services sector activity. It may further sour the mood, potentially push the greenback higher. 

More Explained: What indicators matter in coronavirus times

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