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US Non-Farm Payrolls Preview: Talk of an Upside Surprise

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Today sees the release of the US Non-Farm Payrolls report which is the US Dollar's biggest single driver, with several analysts suggesting an upside surprise is possible.

The highlight of today's economic calendar is undoubtedly the US Bureau of Labour Statistics Report for November, also known as US Non-Farm Payrolls, or simply NFPs.

The main headline figure for NFPs is the number of new jobs added to the economy in the preceding month - in this case, November.

Also of importance is the overall unemployment rate (currently at an extraordinary 17-year low of 4.1%), average earnings, the participation rate (the percentage of the population actually seeking work), public sector payroll growth, and other stats besides, and is released later today at 13.30 GMT.

The NFP report is probably the most important single data release on the economic calendar for the US Dollar.

A higher figure is generally associated with economic growth and almost always leads to a rise in the Dollar.

This is because higher economic growth normally pushes up inflation, which leads to the central bank raising interest rates, and higher interest rates strengthen a currency, by attracting higher inflows of foreign capital drawn by the promise of higher returns.

In October, the NFP came out at 261k, which is quite high; the consensus estimate in November is for a rise of 190k.

The high October result, in part, reflects a "rebound" after hurricanes Harvey and Irma say Lloyds Bank Head of Global Cross-Asset Strategy Robin Wilkin, a rebound which could continue into November:

"Our economists believe this rebound can continue, looking for 220k in the headline today (versus the consensus of 190k), while the unemployment rate should remain at 4.1%," says Wilkin.

Perhaps more significant for the Dollar, however, is average earnings growth, since this - more than the raw employment record - leads to higher inflation and interest rates:

"We also look for earnings growth to pick-up, forecasting a monthly gain of 0.3%, which should pull up the annual rate to 2.7% from 2.4%," adds the Lloyds analyst.

Interestingly, in a separate analysis, Bank of Tokyo Mitsubishi (MUFG) Head of Global Markets Research Derek Halpenny, also expects NFPs to register a higher-than-forecast 220k gain in November, and the same rise in earnings, as Lloyds's Wilkins:

"What is perhaps more important at this stage of the economic cycle is not the pace of jobs growth but the rate of wage growth, which was surprisingly weak last month and is likely to rebound from 2.4% to 2.7%," MUFG analyst.

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