NonFarm Payrolls

Breaking: US Nonfarm Payrolls rise by 162K in August vs. 56K forecast

Nonfarm Payrolls (NFP) in the United States (US) rose by 162K in August, the US Bureau of Labor Statistics (BLS) reported on Friday. This print followed July's increase of 21K and surpassed the market expectation of 56K by a wide margin.

US jobs report post-release checklist – August 7

NFP Actual, Consensus and Deviation	Negative	US Nonfarm Payrolls declined by 23,000 in July, following the 20,000 increase recorded in June. This print came in well below the market expectation for an increase of 80,000.
NFP Revisions	Negative	“The change in total nonfarm payroll employment for May was revised down by 66,000, from +129,000 to +63,000, and the change for June was revised down by 37,000, from +57,000 to +20,000. With these revisions, employment in May and June combined is 103,000 lower than previously reported," the BLS noted in its press release.
Unemployment rate	Positive	The US Unemployment Rate edged lower to 4.1% in July from 4.2% in June.
Labor Force Participation Rate	Negative	The Labor Force Participation Rate declined to 61.4% in July from 61.5% in June.
Average Hourly Earnings	Negative	Annual wage inflation, as measured by the change in Average Hourly Earnings, softened to 3.2% in July from 3.4% in June, coming in below the market expectation of 3.5%.

US jobs report pre-release checklist – August 6

Previous Nonfarm Payrolls	Negative	US Nonfarm Payrolls rose by 57,000 in June, following the 172,000 increase recorded in May and falling short of the market expectation of 110,000.
Challenger Job Cuts	Positive	US-based employers announced 33,429 job cuts in July, down 27% from the 45,849 cuts announced in June, Challenger, Gray & Christmas' latest report showed.
Initial Jobless Claims	Positive	The 4-week moving average of weekly Initial Jobless Claims stood at 198,750 in the week ending August 1, a decrease of 4,500 from the previous week’s revised average.
Continuing Jobless Claims	Neutral	The advance unadjusted level of insured unemployment in state programs totaled 1,873,481 in the week ending July 25, a decrease of 5,066 (0.3 percent) from the preceding week.
ISM Services PMI	Negative	The ISM Services PMI for June will be published on Monday, July 6. The ISM Services PMI was virtually unchanged at 54.1 in July. The Employment Index, however, declined to 47.4 from 51.2 in June, pointing to a contraction in service sector payrolls.
ISM Manufacturing PMI	Positive	The headline ISM Manufacturing PMI improved to 55.6 in July from 53.3 in June. The Employment Index climbed into the expansion territory at 52.8 from 49.7 in June.
University of Michigan Consumer Confidence Index	Positive	The University of Michigan’s Consumer Sentiment Index improved to 55.2 in July from 49.5 in June. In this period, the Consumer Expectations Index rose to 55.4 from 50.7.
Conference Board Consumer Confidence Index	Negative	The Conference Board’s Consumer Confidence Index edged lower to 90.8 in July from 91.2. “Consumer appraisals of current business conditions and, to a lesser extent, perceptions of the current labor market both softened,” the publication noted.
ADP Employment Report	Negative	Private sector employment in the United States grew by 44K in July, the Automatic Data Processing (ADP) reported. This print followed the 98K increase recorded in June and came in below the market expectation of 70K.
JOLTS Job Openings	Neutral	The number of job openings in the US declined to 7.359 million in June. Upcoming Nonfarm Payrolls data will be for July.

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Signatures

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.