The Employment Situation Report is released on a monthly basis.
You’ve probably heard people call it by different names: the employment report, job numbers, and nonfarm payrolls, but they all refer to the same colossal report: the Employment Situation.
It includes a basket of employment reports such as the Unemployment rate, Average Hourly Earnings, and Non-Farm Payrolls report.
The Non-Farm Payrolls report is arguably one of the biggest market movers in the Forex. If you are looking for a report that creates a lot of volatility then this is the one for you!
What is the Employment Situation Report?
The Employment Situation report aims to lay out a thorough picture of the previous month’s state of employment in the United States, mainly:
- How many people are working now
- How many people are looking for work
- How much people are getting paid
- How many hours people are working
The Employment Situation consists of two separate reports:
- An establishment survey that tracks approximately 697,000 work sites for nonfarm payroll, work hours, and wage data.
- A survey of households of approximately 60,000, presenting data on unemployment and unincorporated self-employment.
All of this information is broken down across multiple demographics. It’s a lot to pore over so most people just the Summary that accompanies each report.
What to Focus on in the Employment Situation Report
The Employment Situation typically summarizes data according to five main categories:
1. Nonfarm Payrolls
The nonfarm payrolls number presents the total number of full- and part-time workers in every U.S. sector and industry minus farming jobs.
When private payrolls are highlighted, all government jobs are excluded; when manufacturing payrolls are highlighted, it refers only to manufacturing jobs.
2. Unemployment Rate
The unemployment rate tells you the percentage of unemployed people in the labor force. Keep in mind: it counts only people who are actively looking for jobs.
3. Average Hourly Earnings
The average hourly earnings tell you how much U.S. workers are getting paid.
4. Average Workweek
The average workweek figure tells you the number of hours people worked over a period of a week.
5. Participation Rate
The participation rate tells you the percentage of people who are either working or looking for work.
Because it also presents the percentage of people who are not working, it can help you better understand the unemployment rate.
What is the Employment Situation Important?
The Employment Situation gives traders a way to gauge the future direction of the economy. When it comes to economic reports that sometimes move markets, the Employment Situation arguably holds a lot of weight. Excluding U.S. farming jobs, this report covers 89% of the jobs that drive the entire economy.
In addition to providing recent data on employment across nearly all sectors of the U.S. economy, the report can also be used to forecast potential trends in other aspects of the economy. Everyone” watches this report closely.
They pay close attention to the numbers, waiting to see if the “actual” numbers miss or beat the “consensus” figures. Because everyone watches it closely, it moves violently no matter what the report actually says.
However, since the Employment Situation covers everything from the number of workers to how much they’re making, it makes this report a powerful tool for “guessing” where the economy is headed.
The jobs report can help you determine aggregate wage growth.
For example, market participants like to use average hourly earnings growth and the length of the average workweek to gauge what the aggregate wage growth was for the month. This is important because it can help forecast the health of the consumer, which drives roughly two-thirds of the U.S. economy.
For example, if the labor market is growing, that means more people are making money. The more people that make money, the more spending there will be. More spending results in a higher GDP, and GDP my friend, is the broadest measure of the economy.
Some of the granular, job-category-specific data from the establishment survey can help traders analyze the health of certain sectors. For example, the survey tracks employment changes in residential and commercial building construction, mining, and several categories of retail employment, among others.
Specific sector data is used to help forecast the health of companies in an industry. Such data can also offer clues to other key economic indicators.
For example, the number of manufacturing jobs from the establishment survey is used to help forecast durable goods data.
It’s important to remember, though, that one month’s set of numbers doesn’t constitute a trend. It’s best to consider each data point in the context of trends across time periods to get a more complete picture.
How does the Employment Situation report affect the U.S. dollar?
The monthly Employment Situation report provides a comprehensive overview of the U.S. labor market.
It’s important due to its potential the U.S. dollar and the FX market, in general, in the short and long term.
Generally speaking, if the Employment Situation is positive (growing NFP, lower unemployment rate) then this is considered positive for the US. dollar.
On the other hand, if the Employment Situation is negative (decreasing NFP, higher unemployment rate) then this is considered negative for the US. dollar.
That said, all of this has to be considered in the broader context of how other economies are faring relative to the United States and also how the employment data change market expectations of future interest rate decisions by the Fed (if any).
This report sounds like a lot of fun to watch. When does it come out?
The Employment Situation report comes out on the first Friday of every month at 8:30 a.m. ET.
As a forecasting tool, however, the meaning of the numbers and what they potentially indicate for the future of the markets may not always be clear.
Just remember that interpreting this report can sometimes be a blend of art and science.