What is it?
The Non-Farm Payroll is a monthly record of job creation (not including seasonal agricultural roles) in the USA. But the report also contains details about the unemployment rate, participation among the available US labour pool as well as metrics about hours worked and the hourly earnings of workers.
Why does it matter?
The number of new jobs being created is an important measure in determining the health of an underlying economy since more job creation suggests a growing economy. As such, the rate of job creation is closely studied and grabs most of the attention. However, the outright unemployment rate and average hourly earnings are just as important. Especially when the US central bank (the Federal Reserve) is trying to gauge just how tight the underlying employment market is.
What do I need to know?
Markets seem convinced that the Fed will now move to reduce its balance sheet and to raise interest rates once more, before the end of 2017. While it’s hard to see beyond that, the unemployment situation is one number that could cause the markets and the Fed to think again. The headline NFP or jobs number has been erratic of late. But we haven’t had a big print below forecasts since July. Might one be on the horizon now? That said wage growth is the last piece that’s missing from the Fed’s rate rise jigsaw. So any sign of upward pressure on wages will cement the case for a rate rise.
What to watch
Dollar Index and all of the FX majors. High levels of job creation are often interpreted as equating to expansion within the US economy. Whilst falling employment suggests a contraction. And because the US is a significant consumer of commodities, their prices can also be sensitive to this data and react accordingly. Don’t forget though that a stronger US Dollar has historically been negative for commodity prices.