Was yesterday’s ISM manufacturing report’s employment sub-index growth a fluke? Today’s ADP employment release for April certainly suggests so. Employment grew by 119K, according to ADP Employer Services, well-below the 201K figure from March and the forecast of 170K, according to a Bloomberg News survey. Mainly this was due the weak jobs growth in the construction and manufacturing sectors; goods-producing industries lost 4K workers while employment at factories dropped by 5K. In contrast, yesterday’s ISM manufacturing report showed that the employment sub-index surged to its highest rate since June 2011.
In terms of recent employment trends, it is important to recognize that weather conditions, particular in northern areas of the United States, are often poor enough during the winter months to distort employment figures. To normalize the distortions, the Bureau of Labor Statistics employs ‘seasonal adjustments.’ Thus, when the United States has an unseasonably warm winter, jobs figures during the winter months are skewed to the upside and the “kickback” comes in the spring with relatively muted jobs figures. This has contributed to the poor nonfarm payrolls release for March and is likely negatively influencing jobs trends now.
USDJPY 1-minute Chart: May 1, 2012
Charts Created using Marketscope – Prepared by Christopher Vecchio
Following the report, the US Dollar strengthened modestly across the board, with the largest gains coming against the Australian Dollar (+0.21 percent) and the Canadian Dollar (+0.20 percent). However, the single-best performer following the report was the Japanese Yen, with the USDJPY dropping by 0.33 percent. The Yen’s strength is rooted in what traders expect the Federal Reserve to do. If jobs figures are weak, more easing is expected, which will dilute the US Dollar alongside a drop in Treasury yields; and given the correlation between Treasury rates and the USDJPY, it is clear why more quantitative easing would help the Japanese Yen.
--- Written by Christopher Vecchio, Currency Analyst
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