Non-Farm Payrolls Preview

Coming up on Friday is the Non-Farm Payrolls followed by simultaneously the Unemployment Rate which all eyes are focused on for the end of the week of early August. Yesterday, the ADP reported a significantly weaker than expected private payroll increase in July of 167,000 compared to the 2.3 million forecasted.  Generally, most investors and analysts look for this indicator to predict the outcome of the Non-Farm Payrolls. Furthermore, the ISM Non-Manufacturing Employment dropping to 42.1 from the previous 43.1, pointing to a slowdown in labor market recovery in the last month. On a positive note, ISM Non-Manufacturing Business Activity for July came at 67.2 beating the previous month of 66.0, similarly with the ISM Non-Manufacturing New Orders at 67.7 versus 61.6 respectively, the highest reading recorded. Now, how to make sense of all of this?

The pandemic has caused unusual disruption for the economic data, affecting heavily the employment sector, mostly in the service industries such as restaurants, hotels, and travels since most businesses had to close due to social distancing to contain the spread of the virus. Pre-pandemic era, the US’s economy was very robust with unemployment at lowest in 50 years and the stock market at highest, outperforming all other major global economies maintaining their number one rank status. What would the strongest economy in the world do to reduce the ripple effects from the damages caused by the virus? The government unleashed several stimulus packages worth trillions of dollars (larger than some of the Top tier countries’ GDP) and reduced interest rates to cushion the fallout. This caused the stocks to rally further higher, and weaken the value of the US dollar.

Analysts are expecting the Non-Farm Payrolls on Friday to add fewer jobs and the Unemployment Rate to be slightly better than the previous month. The market’s negative reactions could be short-lived as the next US stimulus is the main attraction. To bring optimism back to the dollar, the next fiscal relief package needs to shock investors, preferably to fall somewhere in between the Cares Act and the Heroes Act and mainly to target the unemployment benefits. Republicans would like the stimulus amount near $1 trillion, while the Democrats are shooting for $3 trillion; hence, the prolonged bipartisan feud.

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