NonFarm Payrolls

Breaking: Nonfarm Payrolls increase by 50,000 in December vs. 60,000 expected

Nonfarm Payrolls (NFP) in the United States (US) rose by 50,000 in December, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading came in below the market expectation for an increase of 60,000.

US jobs report pre-release checklist – February 11

Previous Nonfarm Payrolls	Negative	US Nonfarm Payrolls rose by 50,000 in December, following the 56,000 increase recorded in November and falling short of the market expectation of 60,000.
Challenger Job Cuts	Negative	US-based employers’ planned layoffs soared 205% to 108,435 in January, marking the highest level for the month in 17 years.
Initial Jobless Claims	Negative	The 4-week moving average of weekly Initial Jobless Claims was 212,250 in the week ending January 31, an increase of 6,00 from the previous week's average.
Continuing Jobless Claims	Negative	The advance number for seasonally adjusted insured unemployment during the week ending January 24 was 1,844,000, an increase of 25,000 from the previous week's revised level.
ISM Services PMI	Neutral	The ISM Services PMI held steady at 53.8 in January. The Employment Index of the survey edged lower to 50.3 from 51.7, highlighting an expansion in the service sector’s payrolls, albeit at a softening pace.
ISM Manufacturing PMI	Neutral	The headline ISM Manufacturing improved to 52.6 in January from 47.9. The Employment Index rose to 48.1 from 44.8 in this period.
University of Michigan Consumer Confidence Index	Positive	The University of Michigan’s Consumer Sentiment Index rose to 56.4 in January from 52.9 in December. The Expectations Index of the survey climbed to 57 from 54.6.
Conference Board Consumer Confidence Index	Negative	The Conference Board’s Consumer Confidence Index declined to 84.5 in January from 94.2. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell by 9.5 points to 65.1.
ADP Employment Report	Negative	Private-sector employment increased 22,000 in January, following the 37,000 growth reported in December. This print came in below the market expectation of 48,000.
JOLTS Job Openings	Neutral	The number of job openings on the last business day of December stood at 6.54 million. This reading followed the 6.9 million openings recorded in November and came in below analysts’ estimate of 7.2 million.

US jobs report post-release checklist – January 9

NFP Actual, Consensus and Deviation	Negative	US Nonfarm Payrolls rose by 50,000 in December, following the 56,000 increase recorded in November. This print came in below the market expectation of 60,000.
NFP Revisions	Negative	“The change in total nonfarm payroll employment for October was revised down by 68,000, from -105,000 to -173,000, and the change for November was revised down by 8,000, from +64,000 to +56,000,” the BLS noted in its press release. “With these revisions, employment in October and November combined is 76,000 lower than previously reported.”
Unemployment rate	Positive	The US Unemployment Rate declined to 4.4% in December from 4.6% in November. This print came in better than analysts’ estimate of 4.5%.
Labor Force Participation Rate	Neutral	The Labor Force Participation Rate edged lower to 62.4% from 62.5% in November.
Average Hourly Earnings	Neutral	Annual wage inflation, as measured by the change in Average Hourly Earnings, rose to 3.8% from 3.6%.

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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.