Nonfarm Payrolls (NFP) in the US rose 187,000 in July, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading came in below the market expectation of 200,000. June's increase of 209,000 got revised lower to 185,000.
The Unemployment Rate edged lower to 3.5% from 3.6% and the annual wage inflation, as measured the changed in Average Hourly Earnings, held steady at 4.4%, higher than the market forecast of 4.2%. Further details of the publication revealed that the U6 Unemployment Rate declined to 6.7%, while the Labor Force Participation rate stood unchanged at 62.6%.
"The change in total nonfarm payroll employment for May was revised down by 25,000, from +306,000 to +281,000, and the change for June was revised down by 24,000, from +209,000 to +185,000," the BLS noted in its press release. "With these revisions, employment in May and June combined is 49,000 lower than previously reported."
The US Dollar came under selling pressure with the initial reaction to the mixed July jobs report. At the time of press, the US Dollar Index was down 0.3% on the day at 102.15. Meanwhile, US stock index futures cling to modest gains, pointing to a positive opening in Wall Street.
United States Nonfarm Payrolls
The Nonfarm Payrolls released by the US Bureau of Labor Statistics presents the number of new jobs created during the previous month in all non-agricultural businesses. The monthly changes in payrolls can be extremely volatile due to their high relation with economic policy decisions made by the Federal Reserve. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the Forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months' reviews and the unemployment rate are as relevant as the headline figure, and therefore market's reaction depends on how the market assets them all.Read more.
Next release: 09/01/2023 12:30:00 GMT
Source: US Bureau of Labor Statistics
Why it matters to traders
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
This section below was published as a preview of the US July Nonfarm Payrolls data at 06:00 GMT.
- US Nonfarm Payrolls are forecast to rise 200K in July vs. 209K seen in June.
- The headline NFP and Average Hourly Earnings are key to the Fed’s rate hike outlook.
- US Unemployment Rate is expected to hold steady at 3.6%.
Following the releases of significant US employment data this week, market participants await the all-important US Nonfarm Payrolls report due this Friday, which could influence the US Federal Reserve (Fed) decision on whether to raise the policy rate again this year.
Private sector employment in the US increased by 324,000 in July, Automatic Data Procession reported on Wednesday. This reading surpassed the market expectation of 189,000 by a wide margin. “The economy is doing better than expected and a healthy labor market continues to support household spending,” said Nela Richardson, chief economist at ADP. In response to the upbeat data, the benchmark 10-year US Treasury bond yield climbed to its highest level since November above 4.1% midweek and the US Dollar Index, which gauges the USD valuation against a basket of six major currencies, advanced to its highest level in nearly a month above 102.50.
Earlier in the week, the US Bureau of Labor Statistics announced that the number of job openings on the last business day of June declined to 9.58 million from 9.61 million in May. Meanwhile, the Employment Index of the ISM Manufacturing PMI survey declined to 44.4 in July from 48.1, showing an ongoing decline in the number of manufacturing jobs.
What to expect in the next Nonfarm Payrolls report?
Markets expect Nonfarm Payrolls to rise 200,000 in July following the weaker-than-forecast increase of 209,000 recorded in June. The Unemployment Rate is anticipated to remain unchanged at 3.6%, while annual wage inflation, as measured by the change in Average Hourly Earnings, is seen edging lower to 4.2% from 4.4%.
The Fed raised its policy rate to the range of 5.25-5.5% following the July meeting. In the post-meeting press conference, Fed Chairman Jerome Powell acknowledged that they were observing sings of labor supply and demand coming into better balance. Powell, however, reiterated that the labor demand was still substantially exceeding supply. Nevertheless, Powell refrained from confirming one more rate increase later in the year and said that they will continue to closely watch jobs and inflation data.
Markets are currently pricing in a nearly-30% probability that the Fed will hike the policy rate one more time before the end of the year. In case there is a significant upside surprise to the NFP in July, a reading at or above 250,000, hawkish Fed bets could dominate the action and help the USD outperform its rivals. If a strong NFP figure is accompanied by a high wage inflation, the USD rally could gather further steam ahead of the weekend. On the other hand, a disappointing NFP print between 100K and 150K could highlight loosening conditions in the labor market and hurt the USD.
Analysts at TD Securities expect an upbeat NFP reading:
“We look for payrolls to stay strong in July, registering a 260k gain, and also reflecting a reacceleration from June's 209k print. We also look for the unemployment rate to drop again by a tenth to 3.5%, as we are assuming job creation in the household survey will print a similar gain to that of the establishment survey. Average hourly earnings likely advanced 0.3% m/m, with the y/y measure likely dropping to a still-elevated 4.2%.”
When will US June Jobs Report data be released and how could it affect EUR/USD?
Nonfarm Payrolls number, part of the US jobs report, will be released at 12:30 GMT on August 4. EUR/USD has been staying under persistent bearish pressure since touching its highest level since February 2022 at 1.1277 on July 18. The labor market data could influence the USD’s valuation and trigger the next big action in the pair.
As explained above, stronger-than-expected NFP numbers and hot wage inflation data could strengthen expectations of one more Fed hike this year and force EUR/USD to stay on the back foot. Especially after the European Central Bank adopted a cautious stance regarding further policy tightening in the face of growing signs of a slowdown in economic activity.
Alternatively, EUR/USD could stage a rebound if the jobs report unveils a noticeable cooldown in the US labor market in July, causing market participants to lean toward a no-change in the Fed policy.
“EUR/USD stays dangerously close to 1.0900, where the Fibonacci 61.8% retracement of the June - mid-July uptrend is reinforced by the 50-day and the 100-day Simple Moving Averages. Meanwhile, the Relative Strength Index (RSI) indicator stays below 50, reflecting the lack of buyer interest.”
“A daily close below 1.0900 could open the door for an extended slide toward 1.0830 (static level), 1.0750 (200-day SMA) and 1.0700 (static level, beginning point of the uptrend). Looking north, the pair needs to rise above 1.1000 (static level, psychological level) and start using that level as support in order to stage a consistent recovery toward 1.1080 (20-day SMA) and 1.1150 (static level).”
NonFarm Payrolls FAQs
What are Nonfarm Payrolls?
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve 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 Nonfarm Payrolls 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 Nonfarm Payrolls affect Gold?
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ 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.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come 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 only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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