US Non-Farm Payrolls Explode | US Dollar Gains On The News

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US Dollar Is Up On Jobs ReportAs I mentioned in a post yesterday, US non-farm payroll data became available today; and as expected, employers hired steadily last month. According to the United States Labor Department, the United States added a seasonally adjusted total of 257,000 new jobs in the Month of January. Today, we’ll dig further into the data released in comparison to analyst expectations, talk about the United States Dollar’s reaction to the news, and discuss what the better than expected jobs report could mean for the United States economy in the long run.

January Non-Farm Payroll Data Breakdown

  • Seasonally Adjusted Total Jobs Added – 257,000
  • Full Time Workers – Added 777,000
    • Totals are now at more than 120 million.
    • We now have more full time employees than we’ve seen since 2008.
  • Past 3 Month Job Creation Average – 336,000

How The Value Of The United States Dollar Reacted To The News

Following the positive non-farm payroll data, the United States Dollar went on a sharp increase in value. The United States Dollar index started the day off at 94.47. Following the strong non-farm payroll data, the index increased sharply throughout the morning. The climb continued until the index peaked at 94.90 around mid-day. Throughout most of the afternoon, the index would go on a slow, yet steady fall. However, an end of day rally brought the USD back to 94.84 for an impressive daily gain.

Thank you Investing.com for the chart I used for this brief analysis.

Based on the increasingly positive news with regard to employment in the United States as well as the early reaction we saw from the United States Dollar, I think we are going to continue to see the value of the currency grow.

Long Run Effects The Increasingly Positive Economic Data Will Most Likely Have On The United States Economy

Great employment data is great news, there’s definitely no discounting that. So, in the short term, this is going to be great for the United States. We’ll see more spending, more investing, more hiring, more economic activity as a whole. However, as I said in yesterday’s post, a strengthening United States Dollar and faster than expected economic growth aren’t necessarily good things. Here’s why…

  • Foreign Trade – The United States economy, as with any other major economy relies heavily on foreign trade. Unfortunately, there are several other currencies that are losing value. Therefore, as the USD strengthens, those in other countries, especially those where currency is losing value, will have a harder and harder time affording American made goods. Therefore, as the United States dollar continues to strengthen, we can expect foreign trade to slow.

  • Interest Rates – Currently, the Federal Reserve has pretty low rates. The interest rates are low as part of a plan to stimulate the economy following the last recession. However, the Federal Reserve has openly talked about the interest rate being increased and recently changed the language they use in announcements surrounding the interest rate; making most investors expect for it to happen soon. With increasingly good jobs data, the Federal Reserve may be inclined to increase interest rates earlier than they should. As a matter of fact, that’s the same thing that we saw towards the end of the last recovery!

Final Thoughts

In my opinion, I think the better than expected non-farm payroll report is a good and bad thing. Of course I love to see the United States economy on an upward pace, but the implications of growing too fast could also prove to be a bad thing. With that said, I would have loved to see a report that barely missed expectations. However, with the jobs numbers blowing expectations away, I think we may see the United States dollar grow dangerously fast and the Federal Reserve may increase interest rates too fast, too early.

What Do You Think

Do you think the overwhelmingly positive report is a good thing in the long run? Let me know in the comments below!

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3 COMMENTS

  1. Should be interesting to see how low gas prices affect consumer spending. If I’m right, this should create even more jobs … America is definitely on the mend these days!

    • I do agree that we will most likely see more jobs created. My concern however is in the long run. With such strong data, I could imagine that interest rates are going up sooner rather than later. Changing this too fast, too much, could cause economic struggles. Another major concern for me is the dollar in comparison to other currencies around the world. If you read the earning reports over the past couple of weeks, you probably noticed several of them using a strong dollar to explain away losses or low earnings. The simple fact is that a strong dollar hurts foreign trade. So, if it continues to grow quickly while many other currencies struggle, our foreign trade is going to feel the pain.

  2. I believe the labor market conditions have somehow improved. However, a series of labor market indicators suggest that underutilization of labor resources is gradually diminishing nowadays. I think inflation is more or less 2 percent, which is really a bad news. Longer-term inflation expectations should at least remain stable or improve even a bit.

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