FOREX TRADING

U.S.: NonFarm Payrolls Surprise to Upside – Let the Sunshin in

• The U.S. economy lost 11K jobs in November, the smallest monthly decline over the course of the recession
• The unemployment rate declined to 10.0% from 10.2% in October
• Overall, we continue to believe that persistent job creation will occur in Q1-2010

U.S. nonfarm payrolls decline by 11K in November, which was an extremely strong print relative to market expectations going into the release. The Street was looking for a print of -125K, while our own in-house forecast was looking for a more modest decline of 100K. The prior month’s report was revised much higher to -111K from the originally reported -190K. This month’s report represents the smallest monthly jobs loss since the beginning of the recession. As a consequence, the unemployment rate declined to 10.0% from 10.2% the prior month.

The duration of unemployment ticked up to 28.5 weeks from 26.9 weeks the prior month, which is consistent with the recent theme of declining job destruction and stagnant job creation. Aggregate hours worked rose for the first time in four months, rising by 0.6% M/M, implying the report was stronger than the headline suggests. Average hourly earnings advanced by 0.1% M/M (2.2% Y/Y), which was a slowdown in the pace from the prior month.

The details of the report were strong, with total net revisions of +159K being added to previous estimates. The goods-producing sector continued to lose jobs for the 24th consecutive month, though the decline was notably softer at -69K versus last month’s decline of 113K. On the flip side, the service-producing sector added 58K, representing the second consecutive month of positive job creation. Construction (-27K), retail trade (-14.5K) and manufacturing (-41K) continued to shed jobs, though the decline was noticeably softer than prior months. The largest gainer on the month was business services (+86K), with temporary jobs adding 52K to that sub-category, the largest monthly advance since 2004. The private sector shed 18K positions, while the government sector added 7K.

In the final analysis, this was a surprisingly strong report with details matching the ‘wow’ factor in the headline print. The positive job creation that occurred in certain segments of the industry data is encouraging. Additionally, the slowdown in the pace of decline in a handful of other sub-components squares up nicely with the improvement we have been seeing in the weekly jobless claims reports. On the flip side though, the duration of unemployment continues to increase while earnings remain soft. The main story here is that job destruction is continuing to soften, while job creation is waking up from a long hibernation, albeit very slowly. We continue to believe that persistent job creation in the headline number will occur in Q1-2010, with a very big push then coming from census hiring in Q2-2010. From a policy perspective, this has to be goods news for the Fed, but to the degree that wage inflation is soft, we believe the Fed has a considerable amount of time before they contemplate hiking the fed funds rate, which we believe will occur in Q1-2011.

TD Bank Financial Group

The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.