NonFarm Payrolls


US April’s solid jobs report is set to shape market expectations for a potential Fed rate cut in June

US jobs report post-release checklist – May 2

NFP Actual, Consensus and Deviation Positive US Nonfarm Payrolls rose by 177,000 in April, following the 185,000 increase recorded in March and surpassing the market expectation of 130,000.
NFP Revisions Negative The change in total nonfarm payroll employment for February was revised down by 15,000, from +117,000 to +102,000, and the change for March was revised down by 43,000, from +228,000 to +185,000. With these revisions, employment in February and March combined is 58,000 lower than previously reported.
Unemployment rate Neutral The US Unemployment Rate was unchanged at 4.2% in April, as anticipated.
Labor Force Participation Rate Neutral The Labor Force Participation Rate ticked up to 62.6% from 62.5% in February.
Average Hourly Earnings Neutral Annual wage inflation, as measured by the change in Average Hourly Earnings, held steady at 3.8% in April.

 

US jobs report pre-release checklist – May 2

Previous Non-Farm Payrolls   Positive Nonfarm Payrolls increased by 228,000 in March, following a 117,000 increase recorded in February and surpassing the market expectation of 135,000. 
Challenger Job Cuts   Neutral US-based employers announced 105,441 job cuts in April, a 62% decrease from March. Layoffs, however, were 63% higher compared to last year and April’s tally was the highest reading in five years.
Initial Jobless Claims   Negative The four-week average of the number of people claiming unemployment benefits for the first time stood at 226,000 in the week ending April 26, an increase of 5,000 from the previous week’s average. 
Continuing Jobless Claims   Negative The advance number for seasonally adjusted insured unemployment stood at 1,916,000 in the week ending April 19, an increase of 83,000 from the previous week's revised level. This was also the highest number reported since November 2021. 
ISM Services PMI Neutral
The ISM Services PMI report for April will be published after the US employment report. In March, the headline PMI declined to 50.8 from 53.5 in February. The Employment subindex dropped to 46.2 from 53.9 in this period.
ISM Manufacturing PMI        Negative The headline ISM Manufacturing PMI edged lower to 48.7 in April from 49.0 in March. The Employment Index recovered to 46.5 from 44.7 in this period, still showing that payrolls in the manufacturing sector continued to decrease.
University of Michigan Consumer Confidence Index  Negative The University of Michigan Consumer Sentiment Index weakened for the fourth consecutive month in April, falling to 52.2 from 57 in March.
Conference Board Consumer Confidence Index  Negative The Conference Board Consumer Confidence Index declined to its lowest level in five years at 86.0 in April. The Expectations Index—which tracks short-term outlooks for income, business activity, and employment—plunged 12.9 points to 54.4.
ADP Employment Report  Negative Private-sector employment rose by 62,000 in April, following the 147,000 increase (revised from 155,000) reported in March and missing the market expectation of 108,000.
JOLTS Job Openings  Neutral JOLTS Job Openings dropped to 7.19 million in March from 7.48 million in February. It’s worth noting that the Nonfarm Payrolls data will be published for April.

 

March US JOBS REPORT REVIEW


February US JOBS REPORT REVIEW


January 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.