The US Monthly Jobs Report: how might it impact your trading?

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The first Friday of every month should be highlighted in every trader’s economic calendar. At approximately 1:30pm London time, the US Bureau of Labor Statistics releases its monthly report of the employment of US citizens. The report is used by many as a litmus test for the US economy, informing central bank decisions and rumbling the stock markets – but just how valuable is it for investors? How might it influence important trade decisions? In this article, FXTM Research Analyst Lukman Otunuga takes a look at what makes the report a vital part of a trader’s calendar, and how it might impact the markets immediately after its release.

What does the report tell us?

The report features a broad employment situation summary, household and establishment data, alongside employment and unemployment information for different race, sex and age groups. However, there are four categories which traders should pay particular attention to.

Jobs added

This a key indicator of economic growth. For the past eight years, the private industries in the US have been adding jobs, with close to 127 million employed persons in August 2018 compared to under 110 million in January 2010 according to the US Bureau of Labor Statistics (BLS). These statistics are interpreted as a sign of the economy’s overall health.

Unemployment rate

The unemployment rate is calculated using data collected from US citizens who are able to work, and not in the military or prison. Sixty thousand households are surveyed for the data every month, which is used to determine the race, gender, and age of the current workforce.

The percentage of the overall workforce which is unemployed is watched closely by the Federal Reserve. When the percentage drops, inflation is expected to increase as workers demand higher wages and businesses pay more for skilled workers.

Average hourly earnings

Hourly earnings are worth bearing in mind when looking at the unemployment and employment rate. If the number of employed workers has gone up, but average hourly earnings are in decline, then this may effectively be the same as a lower employment rate.

Sectors adding jobs

Stable sectors are potentially those which are growing. Industries which have recently added more jobs may be priming themselves for further economic growth in the coming months.

What do the figures from the Bureau of Labor Statistics mean?

It can be difficult to understand what these figures mean in practical terms for your trading. To illustrate how the report could potentially create trading opportunities and insights, we’ll take a look at the most recent BLS report for October 2018.

US Jobs Report for October 2018

The report, released on November 2^nd, exceeded expectations. Employment growth – which had followed a positive trajectory for the last 97 months – continued at a faster rate than anticipated. In October, the US added a grand total of 250,000 jobs. Wages and salaries grew 3.1 per cent, the largest increase in a decade.

The unemployment rate remained the same as the previous month at 3.7 per cent, the highest rate of joblessness since the 1960s. Hourly earnings rose on average, hitting 3.1 per cent, the highest level since the 2009 Financial Crisis. Wages similarly rose by 3.1 per cent year-on-year, as expected. Healthcare, manufacturing, construction, transportation and warehousing were reported as the sectors which welcomed the highest number of new jobs.

For the markets

In the wake of the report, the US Dollar rose by 20-30 pips against major currencies. The Dow Jones Industrial Average looked likely to approach a higher open, with the NASDAQ pointing towards a flat open due to low earnings from Apple. US stock index futures fell lower and the yield on the benchmark 10-year treasury bonds hit 3.18 per cent.

For traders

The markets made a considerable jump following the release of the report, providing potential trading opportunities. By controlling risk with a moderate stop, traders might maximise on the large jumps which occur immediately after the statistics are released.

These figures also signal investment opportunities for traders to look out for in the coming months. October’s report informed the Federal Reserve’s interest rate hikes for the remainder of this year and into 2019. The high wage growth meant that the Fed decided to hike interest rates. On the back of the report, the central bank is expected to increase rates in December, and three times in 2019.

However, traders must also bear in mind the wider context of the BLS report. The figures from October may have been distorted by the worker absences resulting from hurricanes throughout the month. Similarly, while the BLS statistics document a positive 32,000 extra jobs added in manufacturing, the Institute for Supply Management reported in October that its manufacturing index had fallen to a six-month low.

Traders who want to trade the monthly job report should also consider the short timespan that these reports cover. The employment data changes by approximately 0.15 per cent between reports, and errors and adjustments are common. Investors should bear these factors in mind before placing trades.

In conclusion

As the release of November’s jobs report approaches, key economists are estimating that the findings could produce another hawkish report on the back of October’s figures. Traders in this case should prepare for the possibility of further Fed intervention if wages continue to grow. Considering the reports together may help traders to identify long-term underlying trends and maximise on the potential trading opportunities the monthly jobs report creates.

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