Could NFP Data Ignite More Hawkish US Policy?

The financial markets’ traditionally favorite US economic statistic has been dethroned, and new classes of data became of higher importance. For the next several quarters, the main role of Nonfarm Payrolls will be to support, reinforce and confirm the Federal Reserve’s new policy which is highly sensitive to inflation.

Short of an outright collapse in American job creation, monthly developments in payrolls should not discourage the US central bank from its attempt to reassert control over consumer prices.

Nonfarm Payrolls are forecast to rise 400,000 in December, almost twice the 210,000 figure added in November. Over the past six months, NFP data has averaged 612,000, with a range from November’s low as above to 1.091 million in July. It has been the best half year of job employment gains since the initial lockdown recovery that began in May 2020.

Employment and US Monetary Policy
Overall consumer inflation has soared from 1.4% (YoY) in January to 6.8% in November. The Core Personal Consumption Expenditure Price Index (PCE), the Fed’s preferred measure, has more than tripled from 1.5% (YoY) at the start of the year, to 4.7% in November.

On Thursday, the US dollar retains most of its post-FOMC Minutes gains, despite US data being generally disappointing. Stocks maintained the sour tone, while US government bond yields are hovering near the multi-month highs achieved on Wednesday.

The focus on Friday will be on the US December Nonfarm Payrolls report. It awaited data is expected to read the addition of some 400000 new jobs after gaining 210000 jobs in November. The unemployment rate is predicted at 4.1%, down from 4.2% previously, although the under-employment rate is foreseen higher, from 7.8% to 8%.

US Federal Reserve officials reinforced the idea of a more aggressive Fed. St. Louis Fed President James Bullard said that the Federal Reserve could raise interest rates as soon as March, while Federal Reserve Bank of San Francisco President and FOMC member Mary Daly said that they will need to raise interest rates to keep the economy in balance.

For the 21 months of the pandemic, from March 2020 to the November 3 Federal Open Market Committee (FOMC) meeting, US central bank policy had been exclusively focused on rebuilding the labour market. Chair Jerome Powell and other officials reiterated several times the importance of restoring employment to its excellent state before the pandemic.

The Fed governors dropped the first hint of a potential policy change in the minutes of the April FOMC meeting released on May 19. The summary noted that a few of the members thought that if the economy continued to improve, the time for considering a policy change might be approaching.

Automatic Data Processing’s (ADP) National Employment Report for December was 807,000, nearly twice as strong as the 400,000 consensus forecast.

Although the ADP and NFP reports draw their data from the US labour market, the monthly correlation has been poor since the pandemic struck in March 2020. Of the 11 months this year, ADP and NFP have moved in the same direction six times and opposite the balance.

The ADP data is a straightforward recording of the employment changes in the firm’s 460,000 US clients, covering about 26 million workers. Payrolls are exclusively in the private sector and do not cover government employment at the local, state or federal level.

Could NFP Data Impact Gold Prices?
As the US Bureau of Labour Statistics (BLS) gets ready to release the December jobs report on Friday, 7 January, and with the exception of NFP data for March 2021, which was published on the first Friday of April, due to lack of volatility amid Easter Friday, the price of gold reacted to the NFP release at 15 minutes, one hour and four-hour intervals after the release.

Gold price also reacted to the deviation between the actual NFP release result and the expected result. For example, the August NFP data missed the market expectation of 750,000 by a wide margin and the deviation was -1.49. On the other hand, February’s NFP data of 536,000 against the market expectation of 182,000 was a positive surprise with the deviation posting 1.76 for that particular release. A better-than-expected NFP data is seen as a USD-positive development and vice versa.