NFP Gains Hit Consensus Mark, Does Drop in Jobless Rate Push Back Chances of QE3?

The US labor market improved in November adding 120K jobs during the month - a figure that hit estimates right on the dot. If we look at previous months revisions we also have a positive note in that October's reading was revised to 100K from the previously reported 80K and September was revised up to a 210K gain from 158K.

Here's the breakdown of the Establishment Survey:

  • Retail trade added 49.8K jobs, the biggest jump in one sub-category.
  • Professional and business services rose another by 33K.
  • Education and health services added 27K and leisure and hospitality added 22K.
  • On the negative side, construction saw a second month of declines with 12K construction workers laid off. Governments shed their payrolls by 20K.

What was a bigger surprise that the non-farm payroll report was the drop in the unemployment rate as it fell to 8.6% from 9.0% in October.

Now, in of itself the number of jobs gained in the Establishment survey was not enough to bring down the unemployment rate, so this recent move could be the result of job seekers leaving the job hunt and therefore not no longer being counted as unemployed.

The household survey which is used for measuring the unemployment rate saw the number of unemployed fall by 594K to 13.3 million, with the number of employed rising 278K. the number of people not in the labor force was up 487K, confirming our suspicions.

On the plus side U-6, which measures the unemployment rate including those working part-time involuntarily or marginally attached the labor force, fell to 15.6% from 16.2%.

Implications and Impact on the Market

It's always a little tricky with non-farm payrolls because today's report showing improvement can lead to 2 counter-acting forces.

One is positive general risk sentiment which helps equities and riskier assets but is actually USD negative. The second is the fact that the unemployment rate dropped may undercut the argument that the Fed is under shooting its employment mandate which may make it slightly tougher for the doves on the FOMC to push for more quantitative easing. On the flip-side job growth is not fast enough to bring down the unemployment rate if the labor market had not contracted.

Does the market may have been anticipating an even better results the fact that we came in on target left little room for a big reaction.

Overall though if this report lessens the chances of quantitative easing three it'll be a positive for the dollar in the medium-term as the USD becomes not only a safe haven but also a means of investment for foreigners as the US recovery is seen picking up some momentum as those in Europe, the UK, and Japan falter.

- Nick Nasad is the Chief Market Analyst at FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.