NonFarm Payrolls

Breaking: US Nonfarm Payrolls rise by 57K in June vs. 110K expected

Nonfarm Payrolls (NFP) in the US rose by 57K in June, the US Bureau of Labor Statistics (BLS) reported on Thursday. This print followed the 129K increase (revised from 172K) recorded in May and fell short of the market expectation of 110K by a wide margin.

US jobs report post-release checklist – July 2

NFP Actual, Consensus and Deviation	Negative	US Nonfarm Payrolls rose by 57,000 in June, following the 129,000 increase recorded in May. This print came in well below the market expectation for an increase of 110,000.
NFP Revisions	Neutral	“The change in total nonfarm payroll employment for April was revised down by 31,000, from +179,000 to +148,000, and the change for May was revised down by 43,000, from +172,000 to +129,000. With these revisions, employment in April and May combined is 74,000 lower than previously reported.” the BLS’ press release showed.
Unemployment rate	Positive	The US Unemployment Rate edged lower to 4.2% in June from 4.3% in May.
Labor Force Participation Rate	Negative	The Labor Force Participation Rate declined to 61.5% in June from 61.8% in May.
Average Hourly Earnings	Neutral	Annual wage inflation, as measured by the change in Average Hourly Earnings, rose to 3.5% in June from 3.4% in May, as forecast.

US jobs report pre-release checklist – July 2

Previous Nonfarm Payrolls	Positive	US Nonfarm Payrolls rose by 172,000 in May, following the 179,000 increase recorded in April and surpassing the market expectation of 85,000 by a wide margin.
Challenger Job Cuts	Positive	US-based employers announced 45,849 job cuts in June, down 53% from the 97,006 cuts registered in May, Challenger, Gray & Christmas' latest report showed.
Initial Jobless Claims	Neutral	The 4-week moving average of weekly Initial Jobless Claims stood at 224,250 in the week ending June 20, an increase of 750 from the previous week’s revised average.
Continuing Jobless Claims	Negative	The advance unadjusted level of insured unemployment in state programs totaled 1,730,250 in the week ending June 13, an increase of 52,812 (or 3.1 percent) from the preceding week.
ISM Services PMI	Neutral	The ISM Services PMI for June will be published on Monday, July 6.
ISM Manufacturing PMI	Neutral	The headline ISM Manufacturing PMI edged lower to 53.3 in June but remained in the expansion territory. The Employment Index improved slightly to 49.7 from 48.6 in May.
University of Michigan Consumer Confidence Index	Positive	The University of Michigan’s Consumer Sentiment Index improved to 49.5 in June from 44.8 in May. In this period, the Consumer Expectations Index rose to 50.7 from 44.1.
Conference Board Consumer Confidence Index	Negative	The Conference Board’s Consumer Confidence Index edged higher to 91.2 in June from 90.6 in May. "Perceptions of the current labor market softened measurably as the percentage of consumers saying jobs were 'hard to get' rose to 22.5%, the highest level since January 2021 (22.8%),” the publication noted.
ADP Employment Report	Neutral	Private sector employment in the United States grew by 98K in June, the Automatic Data Processing (ADP) reported. This print followed the 122K increase recorded in May and came in below the market expectation of 113K.
JOLTS Job Openings	Neutral	The number of job openings in the US rose slightly to 7.594 million in May from 7.585 million in April. Upcoming Nonfarm Payrolls data will be for June.

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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.