Have you ever read news updates mentioning rising unemployment or falling payrolls yet you don’t have a clue what these mean for the forex market?
Well, today is your lucky day because I’m giving you a rundown of the job releases you should watch out for and why they are important.
Perhaps one of the most closely watched releases for any major economy is its employment change report, which shows the change in the number of people who have jobs for a particular period.
For instance, if a total of 1,500 citizens in the fictional country called Genovia had jobs in January then the number of employed folks dropped to 1,000 the following month, the monthly employment change figure would be -500. In effect, the employment change report indicates whether jobs were created or lost during the period.
The U.S. version of this report is more popularly known as the NFP or non-farm payroll figure, typically released at the start of every month. Canada and Australia also publish their employment change reports monthly while New Zealand has a quarterly release.
Most major economies print their unemployment rate along with their employment change reports.
The unemployment rate or jobless rate is simply the percentage of people in the workforce without jobs but are able and willing to work.
Even though market participants tend to pay more attention to the employment change figure than to the unemployment rate, the latter is still worth taking note of because it also provides clues on whether the labor force grew or shrank during the period.
The jobless claims report shows the number of individuals who filed for unemployment benefits. Now, make sure you take note of this because it can get confusing: A positive figure means that some people lost jobs during the period while a negative figure reflects job creation.
The U.S. releases its initial jobless claims data on a weekly basis, usually every Thursday. And just as the Brits refer to potato chips as crips and mom as a mum, the U.K. version of the jobless claims report is called the claimant count change and is released every month.
Why are these reports important?
Employment figures are considered leading indicators of economic growth as the state of the labor market provides clues on future consumer spending and business investment.
Think about it. If you’re not worried about finding a job or holding on to your current one, you’d be less tight-fisted with your cash and be more willing to spend.
Financial confidence then leads to stronger domestic demand, which is good for local industries. As businesses try to keep up with the rising demand for their products, they might decide to increase manufacturing or expand their operations. All in all, these result in stronger economic growth.
As discussed in the School of Pipsology, better growth prospects for a country boost demand for its currency. If you’re scratching your head and wondering why then I’m sending you back to High School to review the Fundamental Analysis lessons!
In a nutshell, positive job reports reflect better economic conditions and brighter growth prospects. In turn, a country’s upbeat economic outlook stokes demand for its currency, driving up its value.