Has the U.S. jobs market been able to bounce back from the impact of the pandemic? Or are we about to see a deeper hole in employment?
Note that the NFP will be released earlier than usual this week, giving market participants some time to prep for Fourth of July festivities.
If you’re hoping to catch some pips from this top-tier catalyst, better read up on what this report is all about, how the previous release turned out, what market watchers are expecting, and how the dollar might react.
What is the NFP all about?
NFP is short for non-farm payrolls, which accounts for the monthly change in the number of employed people outside of the farming industry.This is a pretty huge deal for traders since 1) job creation is seen as a preview of consumer spending and 2) it is one of the earliest major U.S. economic reports released for the month.
Apart from the actual NFP figure, market participants also pay close attention to the unemployment rate, average hourly earnings, and any revisions to previous data.
For more on what employment reports are and why they’re important, check out this crash course on “What the Heck are Jobs Reports and Why Should I Care?”
What happened last time?
- U.S. economy added 2.5 million jobs in May vs. projected 7.75 million decline
- Average hourly earnings sank 1% after previous 4.7% gain
- Unemployment rate improved from 14.4% to 13.7% vs. 19.4% forecast
- Labor force participation rate up by 0.6%
The May U.S. jobs report blew analysts’ expectations out of the water as the headline figures turned out mostly stronger than expected.Instead of churning out 7.75 million in job losses for the month, Uncle Sam reported an INCREASE of 2.5 million in hiring even in the middle of a pandemic.
This was enough to spur an improvement in the jobless rate from 14.4% to 13.7% versus the projected rise to 19.4%. And that’s also with a 0.6% increase in labor force participation to boot!
On a less upbeat note, average hourly earnings sank by 1% and erased part of the earlier 4.7% rise instead of chalking up the projected 1% gain. In other words, even though more Americans found jobs in May, the average pay was notably lower.
What’s expected for the June jobs report?
- June NFP to print 3.037 million employment gain
- Jobless rate to improve further from 13.7% to 12.4%
- Average hourly earnings to show a 0.8% dip
Number crunchers are foreseeing a stronger pickup in hiring for June likely due to the reopening of several states and business operations last month.Forecasts range from a little less than 1 million to as much as 8 million in employment gains, but the consensus is for an increase of 3.037 million in hiring. This should be enough to bring the jobless rate down to 12.4% but wages are still likely to take hits.
Let’s take a look at some leading indicators to see if the actual figure would hit the mark:
The ADP non-farm employment change figure came in at 2.37 million for June, lower than the projected 2.85 million increase. Note that the May reading saw a huge upward revision from 2.76 million in job losses to a gain of 3.065 million.
Weekly initial jobless claims have indicated that roughly 1.5 million Americans file for unemployment benefits for the first time each week.
The ISM manufacturing PMI for June turned out stronger than expected as it climbed from 43.1 to 52.6 to signal a return to industry expansion. The jobs component rose from 32.1 to 42.1 to reflect a much slower pace of contraction.
How might the dollar react?
Based on the Greenback’s reaction to the May upside surprise, it looks like bulls sprang to action upon seeing headline figures in the green.
The U.S. currency was edging lower against its rivals prior to the release as traders were likely pricing in another large drop in hiring.However, the scrilla popped sharply higher against its other lower-yielding peers (CHF and JPY) during the actual release. At the same time, it dipped against higher-yielding counterparts as traders got hungry for more risk then.
If you’re planning on trading the release of the June numbers, better keep tabs on major revisions to earlier reports as this could also be a factor in determining how the dollar might react.
Also, make sure you practice proper risk management when trading this major market catalyst!