Nonfarm Payrolls Preview: Outrageous employment collapse priced in?

US economy expected to have lost 22 million jobs in April.
Disruptive figures have become the “new normal,” and the market may not react.
USD direction to depend on how the figures affect sentiment.

Valeria Bednarik FXStreet

Employment data has been in the eye of the storm ever since shutdowns began in the US, compliments to the coronavirus pandemic. Weekly jobless claims have been in the millions since mid-March when the preventive measures were launched.

The US will publish this Friday the employment figures for April, a full month of quarantine in several US states. The country is expected to have lost 22 million jobs throughout the month, while the unemployment rate is seen jumping to 14% from 4.4%. Nevertheless, there is speculation that such a rate could be closer to 20%.

A sea of red in employment numbers

Will the market be impressed by these numbers? Probably not. The ADP survey on private employment creation showed that the sector lost over 20 million positions in April. The latest unemployment claims report showed that over 3.16 million people filed for unemployment in the week ended May 1.

In fact, the Leading Indicator table is as a sea of red. Challenger Job Cuts in April soared to 671.129K. The ISM PMIs employment sub-components plunged to record lows, while consumer confidence indicators also collapsed in the month. The University of Michigan indicator fell to 71.9 while the CB index collapsed to 86.9.

US jobs report pre-release checklist – May 8th, 2020

Previous Non-Farm Payrolls	Negative	US job report from March showed just the start of the tremendous damage done by COVID-19 in the labor market, printing a 701K job loss. A way bigger number is expected for April.
Challenger Job Cuts	Negative	The number of corporate layoffs skyrocketed to an all-time high, with more than 671K job cuts in April.
Initial Jobless Claims	Negative	Despite a slowdown in the week-to-week first-time unemployment claims, the number was above 3M in the last week, with the 4-week moving average still above 4M.
Continuing Jobless Claims	Negative	The number of unemployment benefit receivers has not stopped rising yet, with more than 22M people receiving those benefits in the week finishing last April 24th.
ISM Non-Manufacturing PMI	Negative	The employment index in the main US service-sector business survey collapsed in April from 47 to 30, way below expectations.
ISM Manufacturing PMI	Negative	Employment sub-component in the ISM Manufacturing PMI accelerated its downtrend in April, falling from 43.8 to 27.5.
University of Michigan Consumer Confidence Index	Negative	UMich consumer survey index also fell down a cliff in April to 71.8, a level not seen since 2011, showing the damage done to the consumer behavior by the coronavirus outbreak.
Conference Board Consumer Confidence Index	Negative	CB consumer index also collapsed from 120 to 86.9, the lowest level since 2014.
ADP Employment Report	Negative	Categorizing the 20.326 million job loss in the ADP private employment as a negative or even dismal indicator is an understatement. Brace yourselves for worst job report ever.
JOLTS Job Openings	Positive	Job openings stayed stable in February, printing a better-than-expected 6.822M new positions, although this lagging indicator is probably useless after the coronavirus outbreak.

Focus remains on pandemic

Market players are rather focused on COVID-19 developments, hoping that economic reopenings would be the beginning of the end of terrible macroeconomic numbers. Investors are mostly optimistic, ignoring the sour employment figures, but also unaware of the high chances of a second wave of contagions. In the US, the curves are only flattening in the New York state, but keep increasing elsewhere.

Economic reopenings have started. If there’s no second wave, unemployment numbers will continue to be irrelevant for a couple more months, probably until Q3. A second wave that means a new round of lockdowns would mean not only a steeper decline in employment but also a longer path toward economic recovery, hence, becoming more relevant for traders.

Dollar’s possible reaction to different scenarios

The financial world has long ago lost the usual correlations and is hard to tell how the market will react. Overall, the greenback is stronger against its European rivals and weaker against commodity-linked ones ahead of the release.

The EUR is the weakest while the CAD is the strongest US rival. In the wider picture, however, the greenback retains the leadership.

The report may take its toll on sentiment, instead of on the greenback. And the dollar may react in consequence. An upbeat market mood will keep the American currency subdued, while plummeting equities may push it higher.

Anyway, the case of a rallying EUR is quite limited. The Aussie may have more chances of advancing while the USD/CAD will be noisy, as Canada will also release its monthly employment figures.

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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