The US Nonfarm Payroll: What Powers the Job Market, Declining Risk Sentiment and US Equities Gain?

1st September 2021.

The Non-Farm Payroll (NFP) is a monthly measure of the United States labor market health, released every first Friday of the month by the Bureau of Labor Statistics. It is a key economic indicator for the United States economy and among the most market-moving data points for the US Dollar, US equities, Treasuries, and Gold.

It reflects the surveyed net change in US employment, which include goods, construction and manufacturing, but excluding farm workers, private household employees and Non-profit organization.

In April 2020, the labour market experienced a massive downturn with the unemployment rate hitting an all-time high of 14.4% and over 20 million people remained jobless following the recession hit that was overwhelmingly higher than the 2007 Great Recession havoc, that left 8.8 million people unemployed.

However, sliding up from January 2021 to August, there was an impressive wave of recovery from the downside with jobs growth soaring high across the hardest-hit sectors such as the Food industries, Travel, and Hospitality industry. Currently, the economy stayed resilient and the US dollars experienced a mild pullback to the upside with US energies, stocks, commodity, and equity markets maintaining massive gains.

The recovery wave and economic resilience was powered basically by;

The Work From Home / Remote Work Model: according to the National Bureau of Economic Research, productivity gains jumped 5% during the pandemic, driven by remote work. This model has powered efficient workflow and integrates the labour market status quo leading to increase job demands. This working model was extended to the state employees creating more job opportunities for a diverse workforce that cuts across both the black and the white communities.

The Hybrid Work Model: In the hybrid model, employees have the liberty to choose either to work remotely or work in the office building. According to surveys, more than two-thirds of employees are offered a hybrid work model Offering a wide range of flexibility and work schedule.

The Vaccine Administration and Covid Case Decline: following mass vaccination and Covid case decline, there was a big upside pressure due to reopening and a surging return to work. Economic confidence is gradually returning with declining risk sentiment and retail sales soaring high.  Though, by tracking the growth trajectory, more is still expected in order to push beyond the pre-pandemic point base.

Federal Reserve Dovish Policy:  from the onset, the core goals of the federal reserve are to use its monetary policy tools to attain broad-based maximum employment and price stability. In line with its articulated policy target, Jerome Powell has maintained a dovish tone by keeping its interest rate figure relatively low and increased its asset purchase program. Though inflation is hitting hard and at its peak, but the Fed Chair speaking in Jackson Hole Symposium relayed that, “Inflation problem is not the priority, full employment target hit is the sole aim and they are on track to keeping employment level relatively higher before tapering”.

Currently, the GDP grew 6.6% in the second quarter of Q2 2021 slightly higher than the 6.5% forecast. The unemployment rate declined to 5.4% and the manufacturing Purchasing Manger’s Index was up 64.1. Though factors such as the rapid spread of the coronavirus delta variant, workers shortage, and supply-chain disruption are offsetting the growth spectrum nevertheless, policies are instituted to keep the economy resilient.

Regardless, traders should brace themselves up for a period of high volatility as the job report often have a great impact on the FOREX market. An increase in jobs will usually strengthen the US Dollar, while a decrease in jobs will usually weaken the US Dollar.

Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on.

The currency pairs with the US dollar, US Futures, US indexes, US Commodities, and Shares are mostly affected by the data release. They include EURUSD, GBPUSD, XAUUSD, USDJPY, USDCAD, USDCHF, AUDUSD, NZDUSD, US100, FTSE, US Oil, Facebook, Amazon, Tesla, etc.

Time Schedule for next NFP release:

Date: Friday, September 3rd, 2021.

 Time: 1:30 pm (GM + 1)

Amogo Solomon is a Broker-Dealer/Market Research analyst and writer in ACT Brokers with a background in Computer Science, Data Analytics, and Forex Broker Dealing. He specializes in Forex Dealing, markets Analysis, Currency research, forex fundamental and technical analysis, and Monitoring of Forex trends, Stocks, Equities, Cryptos, and Commodities. He possesses strong technical and analytical skills and is well known for his entertaining and informative analysis of the global economy, fiat currency, commodities, Stocks, Indexes, Futures, and Options markets. He held a Bachelor's degree in Computer Science and Nanodegree in Programming for Data Science Enterprise.