One of the major drivers for the dollar lately has been the delayed or missing data during the US government shutdown period. This is particularly relevant for trying to determine what the Fed will do at the next meeting, as well as gaining insight into how the US economy is performing. But now that the government is reopening, at least some of that data should become available.
The data collected before the shutdown is scheduled for release relatively soon. However, markets might overlook it as outdated. What’s of increasing concern is that there has been speculation that some October data might not be released at all. Additionally, November data may be delayed as the government returns to normal operations. This could be particularly important if key data releases are delayed to after December 10, when the Fed renders its rate decision.
What Data is Coming Out Now?
The Bureau of Labor Statistics is the primary source of key US economic data, including employment and inflation figures. It was entirely shut down for a month and a half, meaning that it did not send out the surveys for October NFP data, nor did it collect price figures to calculate inflation for that month.
After resuming work last Thursday, the BLS issued its first partial update on Monday, scheduling the release of September NFP data for the coming Thursday. The NFP surveys were collected before the government shutdown, which allows for a relatively rapid release of the data. But even figures from November might be distorted, as the BLS was effectively closed for the first two weeks of the month. The lack of clarity could keep markets on edge, and there could be unusual reactions to the data.
What to Expect From September NFP
The US September NFP is expected to come in at just 22,000 jobs added, compared to 50,000 in August. However, the unemployment rate is projected to remain at 4.3%. This aligns with recent data trends from private sources, which suggest that the labor market is continuing to deteriorate.
There is an ongoing debate at the Fed about whether to prioritize the weakening labor market or inflation, which was last reported as being above target. A slowing US economy with a weak jobs market would eventually mean that inflation would fall back to target or go below. That’s even after accounting for the effect of tariffs. This is the argument made by Fed doves. Markets will be looking for signs of continued weakness in the jobs market to justify hopes for a rate cut in December.
Mounting Warning Signs
Amid high valuations of tech stocks, if the Fed doesn’t go through with a rate cut, it could significantly hurt risk appetite. While this might initially support the dollar, higher interest rates would slow the US economy. This could restart the “sell the dollar” trend as traders look to other economies for growth.
On Monday, the Fed reported that notices of impending mass layoffs by US companies rose sharply in October to 39K. The only times this series has been higher over the last 20 years have been during periods of recession. This comes on the back of Challenger job cuts hitting the highest level since the subprime crisis. A substantial slowdown in the US economy, with the Fed hesitant to cut rates due to a lack of inflation data, could substantially weaken the dollar. But that would help gold return to new record highs. In the meantime, however, traders appear to be cautious about buying gold until a more favorable set of data becomes available.
