February 24, 2024

NFP release and how affects the tight labour market

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The NFP release, August print, is expected this Friday, the 2nd of September. 

The three readings of the report, i.e. monthly average hourly earnings, non-farm employment change, and the unemployment rate, are considered primary indicators of economic health. Job creation is the most important indicator of consumer spending, which accounts for most economic activity. 

All three readings reflect the current state of the economy. So the markets often react to the release, increasing the chance of catching a price swing.

The US economy has added nearly 3.2 million jobs this year, with over half a million in July despite the recession. While analysts expected July’s reading to be relatively low, the actual data outperformed expectations (528k VS 250k forecast). 

According to the ADP National Employment report, U.S. private payrolls increased moderately in August, by just 132,000. 

Still, government data points to strong demand for workers and very tight conditions. Moreover, both reports support that the labour market is slowing as businesses reduce hiring.

According to the Atlanta Fed Jobs Growth Calculator, the US economy needs +343K jobs growth per month over the next 12 months to return to the pre-pandemic US labour market of a 3.5% unemployment rate.

What to expect from the NFP release

Investors will keep an eye on the NFP release to see if the actual number aligns with expectations from the market consensus of 285k. However, some analysts forecast a more considerable increase by 325K in August.

Job growth offers the Federal Reserve enough cushion to stay on its aggressive rate hike path as it tries to bring down inflation.

At last month’s meeting, Fed Chairman Jerome Powell noted an “extremely tight labour market” in his remarks.

Therefore, another sign of a tight labour market will likely uphold the Fed’s policy tightening.

So, should the number come in line or be higher than expected, the odds of hiking 75bp rather than 50bp in the upcoming central bank meeting in September are higher. 

Trading Tip: A higher-than-expected reading is usually positive/bullish for USD and negative for gold. 

*PLEASE NOTE The information above is not investment advice.

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