Last Friday’s NFP release turned out to be a non-event for currency traders. The initial move higher on the USD, caused by the better than expected headline, reversed by the end of the trading day as traders learned more details about the August jobs report.
The United States economy added 1.37 million new jobs in August, fueling the expectation of a strong comeback. The biggest surprise came from the unemployment rate – it dropped to 8.4% on expectations of 9.8% and coming down from the previous 10.2%.
However, behind the positive headlines, some things deserve special attention. Among them, the number of people that lost jobs permanently and the core unemployment rate.
Permanent Job Loss Unemployment On the Rise
One of the biggest problems during the coronavirus pandemic came from the job market. How to keep people employed while many countries or states were in lockdown mode? The answer came from state-aid and thus, it was difficult to estimate the impact the crisis had on the jobs market.
In the United States, the thing that worries the most after the August NFP report is the number of permanent job losses. It continues to rise since February, without even a sign that the trend might reverse anytime in the future. Until this trend changes, it is difficult to interpret any job data as positive.
Another thing coming to spoil the positive headline comes from the core unemployment rate. The core rate refers to the permanently unemployed and marginally attached while removing temporary unemployment. The rate came out at 5.8% in August, just shy from its June high.
Put it simply, it suggests that more unemployment is shifting from temporary to permanent. More precisely, the number of permanently unemployed jumped 19% in a single month, as August marks the first month since March, when less than half of unemployment is temporary.
The economic recession created by the coronavirus pandemic is unprecedented. Governments and central banks, took, as such, unprecedented measures.
Because of that, traditional indicators are distorted, and interpreting the correct data is vital to understanding the true nature of economic recovery, if any. Therefore, it is always wise to dig more into the economic releases because there is always something else behind the headline.
Sure, the drop in the unemployment rate is a welcome development. However if it is not accompanied by a drop in the core indicator too, the danger of a reversal is high.