Interpretation For The Financial Markets
US employment data showed sustained weakness throughout 2011 and the jobs market has become an area of key focus for investors and market participants. For this reason and in this environment the market is particularly sensitive to significant NFP releases.
While the overall number of jobs added or lost in the economy is obviously an important current indicator of what the economic situation is, the report also includes several other pieces of data that can move financial markets:
1. What the unemployment rate is in the economy as a percentage of the overall workforce. This is an important part of the report as the amount of people out of work is a good indication of the overall health of the economy, and this is a number that is watched by the Fed as when it becomes low (generally anything below 5%) inflation is expected to start to creep up as businesses have to pay up to hire good workers and increase prices as a result. This initial rise in prices may mean that workers demand higher wages (especially as the economy reaches full employment) causing further inflation. In macroeconomics, this is known as the price/wage spiral.
2. Which sectors the increase or decrease in jobs came from. This can give traders a heads up on which sectors of the economy may be primed for growth as companies in those sectors such as housing add jobs.
3. Average hourly earnings. This is an important component because if the same number of people are employed but are earning more or less money for that work, this has basically the same effect as if people had been added or subtracted from the labor force.
4. Revisions of previous nonfarm payrolls releases. An important component of the report which can move markets as traders re-price growth expectations based on the revision to the previous number.
Read more about this topic: Nonfarm Payrolls
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