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Trading the Jobs Report

January 09, 2022


If you follow an economic calendar, you’ve probably noticed that the “Employment Situation” data is among the potential market-moving reports on the list. More popularly called the jobs report, it also goes by other names like non-farm payrolls or the employment report.

What does this report cover? How might you interpret it? And how might you trade it?

What is the Jobs Report?

The employment situation is the most comprehensive compilation of all US employment data (excluding farm jobs).

Published by the US Bureau of Labor Statistics on the first Friday of every month at 8:30 am ET, the jobs report tells you how many jobs are created in the US each month. It also provides data to help you understand the wage environment, the number of hours worked, and regional job growth trends among other things.

Let’s get a little granular. Here’s what most traders and investors look for in the jobs report:

  • How many people are currently working
  • How many unemployed people are looking for jobs
  • How much people are generally making in wages
  • How many hours people are spending at work

The data is derived from two sources: a survey of nearly 700,000 work sites to gauge payrolls, hours, and wages; and a survey of around 60,000 households to gauge employed and unemployed (including self-employed) numbers.

Why the Jobs Report Holds a Lot of Weight in the Markets

The state of employment is a critical gauge of economic health, and the jobs report covers almost 90% of all employment in the US. This means that it covers virtually all sectors and industries of the economy (outside of farming). Combined with other economic indicators, the jobs report might also help you forecast potential trends in the economy.

Pay Attention to The Following

Employment situation can be broken down into five sections:

1. Nonfarm Payrolls: This tells you the total number of workers—full-time and part-time—in the US, minus farm workers.

2. Unemployment Rate: This tells you the percentage of people who are unemployed and actively looking for jobs.

3. Participation Rate: This tells you how many people are either working or looking for work; giving you yet another angle from which to view the unemployment rate.

4. Average Hourly Earnings: This tells you how much people are getting paid.

5. Average Workweek: This tells you generally how many hours people work in a week.
So, what do you do with all of these numbers?

Trading the Jobs Report

Short-term approach
The jobs report is often considered a potential market-moving indicator. When it moves, it can cause the market to rise or fall, sometimes dramatically, in the short-term.

To position yourself for a potentially volatile outcome, it helps to understand what analysts are expecting. This is typically listed as “consensus estimates.” Once the report is released, pay attention to the actual figures—whether they beat or miss consensus—and how the market responds to those numbers.

Long-term approach
If you’re looking at the jobs report to inform a longer-term trade, then note the following:

  • A healthy labor market often indicates an expanding economy, as rising job numbers can mean a general increase in wealth leading to greater demand, more consumer spending, and potentially more hiring to meet that demand.
  • In an inflationary environment, job growth can drive demand beyond production capacity, leading to rising prices, and ultimately a higher wages to compensate for the increase in the cost of living. This, in turn, can drive up the price of goods as loss in business revenue due to wage increases may be transferred to the consumer. At this point, you have the beginnings of an inflationary spiral.
  • In contrast, when the unemployment rate increases, this can indicate a recession. Typically, the Federal Reserve would lower interest rates to spur lending which can, once again, restart the cycle toward economic growth.

The Takeaway

The jobs report is a potential market mover, but its indications aren’t always clear. It takes knowledge, skill, and experience to interpret and trade this data. On the side of certainty, the report is a scheduled event, meaning you have plenty of time to prepare for whatever trading opportunities might lie ahead.

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