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NFP Data Preview: Will April's nonfarm payrolls explode as jobs recovery gathers pace?
Lucia Han
2021-05-07 515

Abstract: The U.S. economy is growing rapidly, driven by accelerated vaccination and reopening for business. In addition, the number of new claims for jobless benefits has been at record lows, providing hope for a further recovery in the U.S. labor market. In such case, will April’s non-farm payrolls data present a record-breaking pace of employment growth? How will financial markets react to the employment data?

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Review of March non-farm payrolls data

Nonfarm payrolls data showed a big surprise in March. The employment grew at its fastest pace in seven months thanks to a combination of strong economic growth and accelerated vaccination. A total of 916,000 jobs were added in the country, well above economists' expectations of roughly 650,000, and the unemployment rate fell to 6% from 6.2%. The improvement was attributed to job gains in a number of sectors, with leisure and hospitality being the strongest sector, but still 3.1 million jobs below pre-pandemic levels, even though the sector has been growing for months. Hiring in the education sector has also increased at local, state and private institutions as students return to school. And construction employment has surged, due to the booming housing market, as shown below:


Source from: U.S. Department of Labor

To be sure, the improvement in March's employment figures is a strong indication that some of the unemployed are returning to the labour market as business restrictions are loosened and the economy recovers strongly. Still, the U.S. has four million people out of work compared with before the outbreak of COVID-19. Will April's nonfarm payrolls data bring further improvement? How will the financial markets respond to the data?

Vaccination demand slowed and virus mutation accelerated

The U.S. has administered more than 200 million COVID-19 vaccine doses since the start of its inoculation campaign, with over half of U.S. adults vaccinated at least one dose. However, because many people are skeptical about the side effects of the vaccine, demand for vaccination is slowing in some areas to the point that the U.S. government has decided to close large vaccination clinics in favour of smaller ones that require fewer resources. Fears are also growing that falling demand will hamper universal immunization in the United States. In the short term, accelerated vaccination and reopening are important factors to support economic and employment recovery, but the tens of thousands of new infections and rapid mutation of the virus in the United States every day form a hidden concern and cast a shadow over the future improvement of the U.S. labor market.

Reopening and job recovery gather pace

The U.S. economy is enjoying one of the strongest growth periods in history, thanks to the continued robust recovery of U.S. factories and the rapid growth of the service sector as a result of reopening. The IHS Markit PMI for the services sector jumped to 63.1 from 60.4, its highest level since the data was collected in 2009, signaling a surge in new business, driven by stronger customer demand and looser business restrictions. And the reading for the U.S. Manufacturing Business Activity PMI stood at 60.6, above the 59.1 registered the previous month, despite a backlog of orders due to difficulties in procuring raw materials. While the economy has shown these signs of a strong rebound, Fed officials have warned in recent days that the recovery is a long way off, that many Americans are still out of work and that the virus is still spreading.

Initial claims for unemployment benefits fell sharply

The number of Americans filing new claims for jobless benefits plunged to 498,000 in April from more than 700,000 earlier this month, the lowest level in 13 months since the COVID-19 began, as shown below:


The sharp drop in claims suggests layoffs are ebbing as the country begins reopening the economy and businesses need more labor. It is healing the scars in the labor market, coupled with a booming economy fueled by the large-scale government public assistance programs.

How will gold and US Dollar respond to the non-farm payrolls data?

1. Gold broke above 1800. The price of gold briefly surged to $1,799 an ounce on the back of falling Treasury yields and stronger inflation expectations, but the pressure from the upward resistance level kept the metal flirting with the support line of the ascending channel. However, gold has recently settled above the psychologically resistance level of 1800 and stood at 1818 an ounce because of slipping bond yield and weaker U.S. dollar. Gold fell and then rose after the March non-farm payrolls report. If April non-farm payrolls were as strong as last month's, or if positive data pushed Treasury yields higher, gold could still face a temporary shock.

2. Bearish sentiment toward the dollar is on the rise. The U.S. dollar has fallen nearly 3% since late March, as U.S. Treasury yields remain boxed in narrow ranges after retreating from their 14-month high of 1.7760%, which means the currency has lost significant upside support. But it then bounced back on positive U.S. economic data, briefly breaking above 91 before remaining range-bound. After a slight rise in the greenback on the previous data, which was much better than expected, the U.S. dollar may get a bit of support from the April non-farm payrolls report.

In conclusion, the continued large number of new infections and the rapid mutation of the COVID-19 virus create uncertainty about future improvements in the labor market. But the job market recovery is now in full swing, helped by accelerated vaccinations and a strong economic recovery. And the positive market expectations for April’s non-farm payrolls data may no doubt push up market optimism. Therefore, investors should adjust their strategies in advance to seize the short-term trading opportunities brought by the release of non-farm data.


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