NonFarm Payrolls

US labor market remains resilient with an increase of 228,000 in Nonfarm Payrolls in March

US jobs report post-release checklist – April 4

NFP Actual, Consensus and Deviation Positive US Nonfarm Payrolls rose by 228,000 in March, following the 117,000 increase recorded in February and surpassing the market expectation of 135,000 by a wide margin.
NFP Revisions Negative The change in total Nonfarm Payroll employment for January was revised down by 14,000 and the change for February was revised down by 34,000. With these revisions, employment in January and February combined is 48,000 lower than previously reported.
Unemployment rate Negative The US Unemployment Rate edged higher to 4.2% in March from 4.1% in February.
Labor Force Participation Rate Neutral The Labor Force Participation Rate rose to 62.5% from 62.4% in February.
Average Hourly Earnings Negative Annual wage inflation, as measured by the change in Average Hourly Earnings, declined to 3.8% in March from 4% in February.

 

US jobs report pre-release checklist – April 4

Previous Non-Farm Payrolls  NegativeNonfarm Payrolls increased by 151,000 in February, following a 125,000 increase recorded in January and missing the market expectation of 160,000. 
Challenger Job Cuts  NegativeUS-based employers announced 275,240 job cuts in March, a 60% increase from 172,017 cuts reported in February.
Initial Jobless Claims   PositiveThe four-week average of the number of people claiming unemployment benefits for the first time stood at 223,000 in the week ending March 29, a decrease of 1,250 from the previous week’s average. 
Continuing Jobless Claims   NegativeContinuing claims rose by 56,000 to 1.903 million in the week ending March 22. 
ISM Services PMI Negative
The headline ISM Services PMI declined to 50.8 in March from 53.5 in February. The Employment subindex dropped to 46.2 from 53.9 in this period, signaling a contraction in the service sector payrolls.
ISM Manufacturing PMI        NegativeThe headline ISM Manufacturing PMI dropped to 49.0 in March from 50.3 in February. The Employment Index declined to 44.7 from 47.6,  highlighting an ongoing decrease in the manufacturing sector’s payrolls.
University of Michigan Consumer Confidence Index  NegativeThe University of Michigan Consumer Sentiment Index declined to 57 in March from 64.7 in February. 
Conference Board Consumer Confidence Index  NegativeThe Conference Board Consumer Confidence Index declined to 92.9 in March from 98.3 in February. Views of current business and job market conditions also slipped, with the Present Situation Index declining by 3.6 points to 134.5.
ADP Employment Report  PositivePrivate-sector employment rose by 155,000 in March, following the 84,000 increase (revised from 77,000) reported in February and surpassing the market expectation of 105,000.
JOLTS Job Openings  NeutralJOLTS Job Openings dropped to 7.56 million in February from 7.76 million in January. It’s worth noting that the Nonfarm Payrolls data will be published for March.

 

February US JOBS REPORT REVIEW

January US JOBS REPORT REVIEW

December US JOBS REPORT REVIEW

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BIG PICTURE

NFP: The most important US economic indicator

NFP Definition

The Nonfarm Payrolls (NFP) report measures the number of jobs added or lost in the US economy over the prior month. It is usually released by the US Department of Labor on the first Friday of each month at 8:30 ET.

The report is important because the US is the largest economy in the world and its currency (the US Dollar) is the global reserve currency. This means that many economies peg their currency's value to that of the USD and many commodities such as Gold and Oil are priced in terms of the Dollar.

The NFP report tends to move all markets: currencies, equities, bonds, commodities and cryptocurrencies. It does so immediately after the release of the economic data and sometimes dramatically.

Why is NFP important?

The Nonfarm Payrolls (NFP) report is arguably one of the biggest market movers in the Forex. The NFP figure can influence the decisions of the Federal Reserve (Fed) by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.

A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.

The Fed will typically raise interest rates to combat high inflation triggered by low unemployment and lower them to stimulate a stagnant labor market.

How does NFP affect the US Dollar?

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.

NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

How does NFP affect Gold?

Nonfarm Payrolls are generally negatively correlated with the price of Gold. This means a higher-than-expected payroll figure will have a depressing effect on the Gold price and vice versa.

Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.

Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

How to trade NFP?

Those who trade NFP releases base their advice on previous preparation and some fundamental research. The elaboration of some macroeconomic analysis is essential for successful trading.

This research includes averages of past headline NFP numbers, Weekly Jobless Claims, ISM reports, or other employment data published earlier such as ADP, JOLTS, or the Challenger report.

Nonfarm Payrolls is only one component within a bigger jobs report and the data can be overshadowed by the other components.

At times, when NFP comes out higher than forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.

The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but to a much lesser extent.