All roads led to the US Nonfarm Payrolls report – the number of new jobs created during the previous month in all non-agricultural business – last week for the pound vs dollar rate. On Friday, the US Bureau of Labor Statistics closely watched report showed the US economy created the fewest jobs in nine months in September amid worker shortages. However, falling Covid-19 cases and the cancellation of generous unemployment benefits could support hiring in the coming months.
The employment report also revealed the unemployment rate dropped to an 18-month low of 4.8%, although that was partly due to people leaving the workforce. There were signs that the labour market could pick up: wage gains continued to accelerate, permanent job losses fell and fewer people were experiencing extended spells of unemployment.
The report showed nonfarm payrolls rose by 194,000 in September, falling well short of economists’ expectations of between 250,000 to 700,000 new jobs. Data for August was revised up to show 366,000 jobs created instead of 235,000 as previously reported. Employment remains 5 million jobs below its peak in February 2020, before the full force of the Covid-19 pandemic was felt by the US economy. Data for the employment report was compiled in early September when the spread of the Delta variant of the coronavirus was at its highest.
Despite the meagre payroll rise, wage inflation – average hourly earnings increased 0.6% from 0.4% in August – should be enough to keep the Federal Reserve on course to scale back its massive monthly bond-buying programme this year. Last month, the central bank indicated that it could start tapering its asset purchases as soon as November. Economists expect that announcement will be made following the November Federal Open Market Committee (FOMC) meeting.
The dollar dropped in value in the wake of the softer-than-expected jobs report, causing the pound vs dollar rate to jump to the 1.36 mid-range before settling just above the benchmark for the weekend.
The Columbus Day bank holiday in the US on Monday means the first data of note to be published from across the Atlantic arrives on Wednesday when the Consumer Price Index for September hits the headlines. This is swiftly followed by the minutes from the latest FOMC meeting, with investors eagerly awaiting updates on the Fed’s monetary policy projections.
It’s a busier start to the week in the UK calendar with the NIESR GDP Estimate and BRC Like-For-Like Retail Sales scheduled for release on Monday. The ILO Unemployment Rate and Claimant Count Change figure – both published on Tuesday – will be closely monitored by investors.