Powell worker construction 2

The US dollar has given back most of its gains and the initial hawkish reaction to the non-farm payrolls report has been largely erased.

That probably reflects that non-farm payrolls are a lagging indicator and that the Fed has already signaled slowing rate hikes to 50 bps. In short, the report wasn't strong enough to change anything, at least not yet. In addition, there was already a trend towards a weakening dollar this week and the market has gotten back to that.

Or maybe there's more to it.

I highlighted the importance of the household survey ahead of the data and it was weak for the second month in a row. Here's what CIBC had to say about it:

The household survey, which is more volatile than the payrolls survey in a given month, but is often considered a leading indicator of the payrolls count around turning points in the economy, showed a loss of 138K jobs, adding to job losses in the prior month. After stripping out the self-employed to get a measure more comparable to payrolls, including this month's dip, household survey non-farm employment is roughly unchanged from March 2022 levels.

That's seven months without jobs growth.

US household survey nonfarm payrolls
US household survey nonfarm payrolls

If we would be seeing that in the establishment survey, we wouldn't be talking about hikes going above 5%.

What's interesting is that the entire drop in non-farm household survey employment was due to self-employed and unpaid family

That reminds me that self employment surged early in the pandemic and we've now passed the two-year mark beyond it. That's when most businesses fail. The reversion of self employment would also help to explain strength in the establishment survey. What could be happening is that workers who were self employed are leaving those ventures (not captured in the establishment survey) and returning to normal jobs (something that is captured in the establishment survey). If so, that would paint a picture of a jobs market that's significantly weaker than what's been portrayed and the market may be picking up on it.