The nonfarm payrolls report, part of the Labor Department’s monthly payroll data, is considered one of the most important economic data points released during the month.
Changes in job growth not only affect the direction of multiple markets, but may also change sentiment and investors’ views on economic growth.
The question is why does a lagging indicator have such a big impact on financial markets?
So let’s talk about why nonfarm payrolls matter?
Nonfarm payrolls are released by the Bureau of Labor Statistics on the first Friday of each month, except for national holidays in the United States.
The report describes the state of employment in the United States by reflecting the number of new jobs created last month.
The data is timely and is accounted for using a survey of firms’ employment practices in the previous month.
Nonfarm payrolls are released along with the unemployment rate measured by the Employment Household Survey.
The reason nonfarm payrolls are so important is because they drive economic momentum.
When new jobs are created, emotional momentum begins to increase and consumers begin to spend more freely.
Since nearly two-thirds of the U.S. economy is driven by consumer spending, it’s clear why job creation is so important.
Job creation could push up wages.
That matters because job growth is an important factor the Fed tracks to determine whether interest rates need to be raised or lowered.
The Fed has a dual mandate when it comes to regulation.
They use a combination of growth and inflation to decide whether reforms are needed.
When wages start to rise, the Fed is likely to be concerned about consumers’ ability to pay higher prices for goods and services, a sign of inflation.
The combination of quantitative numbers and reports that provide insight into potential consumption could make non-farm payrolls one of the key numbers generated by capital market traders on a monthly basis.
A stronger than expected number would normally raise interest rates, which could ripple through the dollar securities market.
The Fed only regulates the short term of the curve, but the market regulates the long term.
By making borrowing more expensive, higher interest rates slow economic growth.
While there are many economic indicators such as personal consumption and retail sales, as well as PCE will change the capital market process, nonfarm payrolls is the most important because it reflects sentiment, inflation and potential growth in one number.
Officials urged the Prime minister to resign.
