MACRO 3 minutes to read

NFP report : Another danger signal for the US economy

Christopher Dembik

Head of Macro Analysis

Summary:  The latest ADP, which rose only 27k, was the first very worrying signal regarding the US labour market this year. The payrolls for May that have just been released tend to confirm that the jobs market is indeed facing negative pressure.


It's a big miss: nonfarm payrolls headline number rose by 75k versus 175k expected, which is way below the 3-month modified moving average (standing at 150k). This is the second time this year that NFP came in under 100k. On the top of that, both March and April jobs growth were revised downwards by a total of minus 75k, which makes the miss even worse. Last but not least, hourly earnings growth is slowing at 3.1% versus prior 3.2%.

Usually, when we are approaching the end of the cycle, we should not focus so much on the unemployment data as they are both lagging and contrarian indicators. However, this big miss will obviously reinforce the market view in favor of rate cuts (odds are above 70% for July Federal Open Market Committee meeting).

The Fed is in a corner, as economic activity is showing signs of weakness and it is pushed to move towards “insurance cut”. Nonetheless, such a move will be interpreted by market participants as panic cut, meaning they will expect more cuts to come as the outlook is getting gloomier.

We are heading towards a global policy reversal, with high expectations that the Fed will cut rates by 50 basis points by October. 
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