Reinterpreting NFP: Does slowing job growth argue for an immediate taper?

This alternative interpretation of the state of the US labor market augurs for almost polar opposite policies from the Federal Reserve and Congress...

Many analysts (ourselves included – see here) viewed Friday’s disappointing 194K increase in jobs as a sign that the US labor market’s recovery may be slowing just as the Fed is likely to start removing stimulus by tapering its asset purchase program.

What are non-farm payrolls?

However, there is another interpretation of the jobs report with almost polar opposite implications for policy: Rather than being due to low demand for workers from employers, perhaps the soft jobs growth we saw last month was due to a low supply of workers that were willing to join the labor force, at least at the wages on offer?Between a growing mismatch of employee skills and employer needs, concerns about workplace safety, a lack of affordable childcare options, and government support for the unemployed, there’s a potentially convincing case that workers are no longer willing to work at certain jobs for the same pre-pandemic wages.

Digging under the surface, some of the secondary aspects of Friday’s report support the “labor shortage” thesis. For instance, the unemployment rate fell a full 0.4% to 4.8%, despite the relatively low job growth. Likewise, the Labor Force Participation Rate (LFPR) held mostly steady at 61.6%, still down nearly 2% from the pre-pandemic levels of February 2020.

Taken together, these figures suggest that fewer Americans are participating in the labor market at all. For those who are, jobs are relatively plentiful; indeed, according to the latest NFIB survey, the biggest issue for small businesses are that jobs are hard to fill, with 51% of respondents citing that concern, the highest level in decades.

So why does it matter?

As we noted above, it’s important to remain open to this interpretation of the US labor market because it augurs for almost polar opposite policies from the Federal Reserve and Congress. If potential employees are only willing to return to work for sharply higher wages, then maintaining easy policies will only exacerbate the problem and lead to stickier inflation down the road; instead, the Fed should look to start tapering immediately and potentially raise interest rates multiple times in 2022 if the labor market continues to run “hot” in this way.

How could you trade it?

The “labor shortage / sticky inflation” inflation thesis would have broad implications if it gains traction, with everything from interest rates to commodities to the greenback rising.

One specific setup that will be worth monitoring is on USD/CHF. Despite choppy price action over the last several months, the currency pair has formed a series of higher highs and higher lows within a bullish channel over the last two months. Now, rates are testing the bottom of the channel, presenting a potential low risk entry into the current uptrend:



Source: StoneX

If the channel holds, USD/CHF could rally to fresh 6-month highs in the low-0.9400s before encountering any meaningful resistance. That said, a break below the current channel support level would point toward a deeper retracement to at least the rising 50- and 100-day EMAs near 0.9200 next.

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.