November 2013 NFP Expectations Rise

Today the US revised its gross domestic product growth in the third quarter of 2013. The US GDP grew 3.6% in the third quarter beating previous forecasts. This is the best quarter since Q1 2012. The original growth figure was 2.8% reported from the US Department of commerce last month.

The main driver behind the growth is the buildup of business inventories. While there is not a perception that this inventory growth will be sustainable, it does highlight a positive in that corporations are investing again waiting on consumers to deplete said inventories.

The Employment report released tomorrow will give further insight to the market on the overall health of the US economy. The Fed has been very vocal on tapering as a way to reduce the cost of keeping rates low, but has not given a schedule when it might happen. A strong NFP makes the case for tapering, but the actual date might be off into next year.

Ben Bernanke is still the Chairman of the Federal Reserve. His term ends in January, although he is unlikely to see it through to next year. Janet Yellen his Vice-chair has already been approved as a nominee and all that remains is the US senate to vote on her confirmation. The Bernanke legacy will be preserved so as long as he is still at the Fed, tapering might be delayed.

The actual NFP figure has been speculated to roam in the 183,000 to 240,000 range. The higher the figure the more likely it could end up in an unemployment rate drop. Last month’s NFP number was 204,000 so there is a chance the November employment numbers disappoint.

The Non-farm payrolls (NFP) report is published by the U.S. bureau of Labor Statistics. The monthly report includes the total number of workers (excluding certain industries) that are added to the U.S. economy on a monthly basis. It is published the first Friday of the month (except when that day happens to be the first of the month) at 8:30am Eastern Standard Time.

The NFP is the biggest report in forex. When the Bureau of Labor Statistics releases the number of jobs created and the current unemployment rate, investors react instantaneously to the information. A rise in jobs and lower unemployment should boost the demand for the US dollar versus other currencies. Viceversa lower than forecasted job creation and a rise in the unemployment rate would reduce the demand for the US dollar which would see it lower in value versus other currencies.

The NFP includes the employees of durable goods, construction and manufacturing companies while excluding farm workers, private household employees and non-profit organizations. This indicator can give an important insight on the overall strength of the US economy. It is even more important after in December of 2012 the Federal Reserve set a target of 6.5% unemployment to signal economic recovery. The US central bank would then start cutting back on the $85 billion a month bond buy-back program. The current rate in the US is 7.3%.

Given the statements from the Fed the NFP report will be closely watched by market participants from all major markets as it can have the power to impact the fundamental drivers of the US economy.

Next Release:
The Employment Situation for November 2013 is scheduled to be released on Friday, December 7, 2013, at 8:30 A.M. Eastern Time.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza