Yesterday we saw two employment reports which painted a much different picture than what many hoped for and one which is closer to reality than any other report released in 2014 on the labor market. While expectations were lofty in the hope to keep the false optimism alive reality gave traders what may be the first taste of how weak the underlying economy really is.
Let’s start with Canadian employment which posted a contraction of 10,000 jobs while private employers shed over 108,000 jobs which matched an all-time high not seen since 1982. Expectations called for job growth of 10,000 while the unemployment rate remained unchanged at 7.0%. The participation rate declined to 66.0% as more workers left the labor force.
Full-time employment contracted by 2,300 while part-time employment decreased by 8,700.This was a terrible development for the Canadian economy which stated the strength of its labor market should be taken as an example as it is above its peer’s performance. The blow delivered yesterday may have been a wake-up call for the excessive bullishness not just for the Canadian economy, but for the overall global economy.
The US followed suit and delivered the worst non-farm employment report for 2014 and it could go down from here. Economists expected an increase of 230,000, but the actual figure came in at 142,000. The unemployment rate decreased to 6.1% thanks to more people giving up on the job market and leaving the labor force which also pushed the labor force participation rate down to 62.8%. The continued decrease in the labor force participation rate is a very troubling development.
Adding to the negative was the revision to the previous two months which showed 28,000 less jobs were created than initially reported. This puts the actual figure for August to 114,000 jobs created or less than half of expectations. While this is the first such report which highlights the true weakness of the US labor market forex traders need to be careful with the September NFP report as another weak report is likely to crush the US Dollar for the rest of 2014.