The US non-farm payrolls release is one of the most closely watched US indicators, and is considered one of the best gauges of US job creation.
The result is published at 10.30pm AEST on the first Friday of every month, and the minute after this data is released is frequently the busiest trading period at IG Markets. Regularly we see more than 7000 transactions taking place, highlighting the significance of this announcement to the financial community.
What is non-farms?
Non-farms is the number of jobs created in the US each month, excluding farm, government, private household and non-profit organisations. It is a key indicator of the state of the US economy.
Why is non-farms so important?
Labour is critically important in the US economy, with unemployment levels playing a leading role in the perceived strength of the current economic recovery. Consequently, the policies of the Federal Reserve may be influenced by the non-farm figures:
- If the number of jobs being created is high, this can point to inflationary pressure, and the Federal Reserve might be led to consider a rates hike.
- A decline in the number of jobs being created may indicate the economy is contracting, raising the chance of a rates cut.
- Up or down, if the figure deviates from analysts' expectations, there is a good chance there'll be volatility in dollar exchange rates and stock index levels.
Why non-farms on August 5 is in focus
- US economic growth remains a critical focal point, and the creation of jobs is central to this. The US is not creating enough, especially given the amount of stimulus that has been put to work. More jobs breeds confidence in spending, boosting retailers and businesses. A strong number could indicate a pick-up in demand for commodities, notably oil which is testing $100.
- The Federal Reserve pays close attention to the release, and a strong or weak number will have an on-going bearing on its views on monetary policy. With talk that the Fed could also look to implement new fiscal measures (perhaps QE3), a weak figure could spur good buying in gold.
- The last two non-farm releases have seen anaemic job creation of 25,000 and 18,000 jobs, and the unemployment rate has ticked up from 8.8% to 9.2%. Given one of the central mandates for President Obama was job creation, how much will he be feeling the heat coming into a new presidential election?
- Expectations (as they stand) are that we will see 113,000 jobs created, with the unemployment rate expected to remain at 9.2%. With a risk on/risk off mentality, better-than-expected numbers should see a clear bid go into risk assets such the AUD, EUR, equities and commodities
- All asset classes should react, and usually the first is not always the last with a trend developing after traders have had a chance to digest the implications of the release.
- With talk of QE3 circulating trading floors, this non-farms could certainly play into the Federal Reserve's way of thinking.
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Updated: 01/08/2011
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