April US NFP Preview

Wall Street enters ‘Jobs day’ in a state of panic after a massive 1000 point drop in the Dow Jones and 5% crash in the Nasdaq on Thursday. The prospects of slower job growth appears to be provoking stagflation fears.

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What's shaking things up

The consensus of expectations is that the US economy added 385K jobs during April, a slowing of the pace from 426K in March. But, with the outlook for monetary policy in the short term pretty established, it would probably need a significant move away from expectations for the jobs number to change policymakers’ minds. 

At the current rate, analysts are forecasting the US will recover all the jobs lost during the pandemic by this summer.

The issue, then, revolves around inflation expectations. Last month inflation was 8.5%, but wages only grew by 5.6%. The consensus among economists is that during April, average hourly earnings are expected to actually slow down at an annual rate of 5.5%. In other words, employees are seeing their purchasing power eroded consistently, which could- given enough time- translate into slower consumer demand.

It's not about the jobs number

The thing is, there are 11.5 million jobs available, but just 6.3 million people to fill them. The number of people seeking jobs has already dropped to pre-pandemic levels, which is why despite there being less people currently employed than in early 2020, the unemployment rate is expected to tick down to 3.5% from 3.6%.

The labor market is in a big state of flux thanks to high jobs turnover and the rising cost of living. A record 4.5 million people quit their jobs last month, intending to get another higher-paying job. Employers are reluctant to raise wages, particularly in the services sector, because they are still dealing with the aftermath of the pandemic. 

With real wages declining, it's not surprising US employees are also reluctant to go back to work. At some point, that could all into question the Fed's current aggressive rate hiking cycle.

DXY at 20yr high

The US DOLLAR INDEX printed a fresh 20-year high at 104.0 after retesting 103.0. Bulls managed to convert the top line of the ascending channel starting on May ‘21 into support following a ‘morning star’ pattern formation just before the surge. 

Breaking 104 would open the room to 105, which is somewhat supported by the CCI positive reversal. If price action sees exhaustion, a double top formation could send prices back to the channel top, if not within. 

Key takeaways

Despite the slowing pace, the US economy is expected to recover all lost jobs this summer, with the only questionable factor being inflation expectations. The number of unemployed people has already dropped down to pre-pandemic levels, but the decline in the unemployment rate is expected to continue downward as less people are seeking jobs due to stagnant wages.