Economic Indicators: Why does the NFP Report (Non-Farm Payrolls) is so important?
Like all the first Fridays of the month at 8:30 (New York Time), last Friday the US Employment Report for the month of January (NFP report) was published by the Office of Labor Statistics of the US Department.
This report is the first of the year and shows job creation that increased by 227,000 in January, particularly in the trade, construction and financial services sectors, and an unemployment rate that increased slightly at 4.8%. The average hourly gain of all private sector employees has increased by 3 cents to $ 26 in January, after an increase of 6 cents in December 2016.
US Employment Report for the month of January 2017 (NFP report)
US Employment Report for the month of January 2017 (NFP report)
Why is this report so much followed by investors?
1 # He tells us about the situation of the labor market in the United States
Considered one of the best barometers of the health of the US economy, the labor market makes it possible to evaluate whether the US economy accelerates or on the contrary, if it slows down.
In the NFP report, there are two main monthly surveys that give us an overview of the employment situation as well as future trends: Household or CPS investigation and the investigation are Establishment or CES.
The CPS or Current Survey survey provides information about the labor force, employment and unemployment demographically:
Status vis-à-vis the job: participation rate, number of people not present in the labor force ...
Unemployment rate: by age, sex, race ...
Reasons for unemployment: have completed a temporary job, leave your job ...
Duration of unemployment: less than 5 weeks, more than 27 weeks ...
Part-time employees: for economic reasons, because they could only find part-time jobs ...
People not considered part of the workforce: discouraged persons, people marginally attached to the workforce ...
The CES or Current Employment Statistics survey provides information on industry by industry:
Number of employees by sector of activity, industry and sex
hours worked per week on average
Overtime by sector of activity
2 # He helps us anticipate future consumer behaviors
The investigations of this report that allow us to have an idea of strength or weak labor market in the United States.
This information also helps us predict how consumers will spend their money. From the point of view of the business, we can also determine in which sectors of activity labor requirements are the most important or on the contrary which sectors of activity destroy the most jobs. This will influence the US growth positively or negatively, business investment and the evolution of inflation.
When we receive a salary, it can be either spent or invested or spared. So more there are jobs created and more there are people who receive a salary. The probability that employees spend this money is therefore greater. In the same way, when wages increase, employees receive more money than they can spend more. Household spending represents an important pillar for US growth since they represent more than 60% of US GDP.
3 # It allows us to better anticipate future Fed decisions
The Fed has a double mandate of full employment (4.8% unemployment rate) and price stability (2% PCE index). Much information is available in the NFP report on this dual mandate. This report allows us to appreciate the existence of inflationary pressures at the wage level and the general state of the work situation as well as its future evolution.
Inflation
As we have just mentioned, the evolution of salary and the level of job creation play a crucial role in the evolution of consumption, but also in the evolution of inflation.
As we had explained in a previous article (the Fed and Donald Trump: what will change!), If more people receive a salary then there may be more consumer spending and demand for certain goods could increase more quickly that the offer of these same goods. If the company that provides these goods decides not to expand its production, then the prices could increase because these properties will become rarer: the demand will be greater than supply.
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