Will an NFP Exceeding Expectations Prop up US Economy?

At the turn of October and November, the forex market again sees great ups and downs as US released 2 major economic indicators, the latest Federal Reserve interest rate and the October non-farm payrolls. Besides the market fluctuation, investors also need to pay attention to what these two indicators say about the US economy and its future trend.

The Fed announced yet another rate cut at the end of October, reducing the target range of the funds rate to between 1.5% and 1.75%. After the two consecutive interest rate cuts in late July and mid-September respectively, this is the third time during the year for the Fed to cut interest rate. In its statement, the Fed said that the current US job market is robust and the economy is growing moderately, but investment and exports are still weak; inflation remains low without reaching the target and uncertainty still exists. Meanwhile, the Fed will continue to closely observe any changes that has an impact on the economic outlook, in order to make assessments and choose an appropriate approach for interest rate adjustments.

Due to the General Motors strike, the market's expectations for October non-farm payrolls were significantly lower. However, the NFP data released in early November, surprisingly, turned out better than market expectations. The data showed that 128,000 non-agricultural jobs were added in the US in October, higher than the expected increase of 89,000. Meanwhile, the US Labor Department also made positive revision to August and September‘s NFP, triggering market’s optimism over US economy.

On the other hand, ISM's October manufacturing PMI data later released sat at 48.3, lower than expected. From the trend of PMI in recent months, it seems that US economy is still under pressure. Although October‘s non-farm payrolls beat expectations, it doesn’t necessarily indicate a recovery of the US economy, given that its a lagging indicator. In addition, there are a handful of other evidence that it may be too early to cheer for a rally of US economy: the actual value of the previously announced Chicago Purchasing Managers Index is only 43.2, lower than the expected 48.3 and at the lowest level since December 2015; the number of US corporate recruits has dropped to the lowest level in 7 years; many big companies like Molson Coors, Forever 21 and Dressbarn have begun to lay off workers; the US consumer confidence index has fallen for three consecutive months...

Overall, despite the Fed's gradually easing monetary policy and Octobers NFP that outperformed expectations, the US economy is still in a typical economic downturn period. Therefore, investors need to analyze the US economic situation from various scopes in order to better grasp the market trend. WikiFX offers brief analysis of important market events, you can visit the WikiFX website and App for more forex information and updates.