March 2023 US Non-Farm Employment (NFP) data will be released today at 15:30. As this date coincides with the Federal holiday, the US stock market will be closed, but the Futures and Forex markets will remain open. The NFP report reflects the previous month’s data, including data and statistics on employment status in the United States. It is a very important macroeconomic indicator as it helps shape the monetary policy of the US Federal Reserve (Fed) and affects the value of the US Dollar and most asset classes in the financial markets.
What does the Non-Farm Employment data point to?
cryptocoin.com As we have reported, Non-Farm Employment (NFP) is part of the monthly employment report of the US Bureau of Labor Statistics. The Non-Farm Employment component specifically measures the change in the number of people employed in the US in the previous month, excluding the agriculture sector. The Non-Farm Employment figure could influence the Fed’s decisions by providing a measure of how successfully the Fed is fulfilling its mandate to promote full employment and 2 percent inflation.
A relatively high Non-Farm Employment data means more people are in employment, making more money, and therefore likely spending more. A relatively low Non-Farm Employment result could mean that people are having a hard time finding work. Experts say the Fed will often raise interest rates to combat high inflation triggered by low unemployment and lower interest rates to stimulate a stagnant labor market.
How does nonfarm payroll data affect gold, Bitcoin and the US dollar?
Non-Farm Employment is generally positively correlated with the US Dollar. This means that the USD tends to rise when the payroll numbers are higher than expected and vice versa when they are lower. NFPs affect the US Dollar because of their impact on inflation, monetary policy expectations, and interest rates. A higher NFP usually means that the Fed will be tighter in monetary policy and support the USD.
Non-Farm Employment is generally negatively correlated with the price of gold. This means that a higher-than-expected payroll figure will have a depressing effect on the gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and gold, like most major commodities, is priced in US dollars. So if the USD appreciates, less dollars are needed to buy an ounce of gold.
In Bitcoin, the lower than expected NFP figures have so far caused the crypto markets (including Bitcoin) to recover, according to experts. Non-Farm Employment is only one component in a larger employment report and may be overshadowed by other components. At times, when Non-Farm Employment was higher than anticipated but Average Weekly Earnings were lower than expected, the market ignored the potential inflationary impact of the headline result and interpreted the decline in earnings as deflationary.
Non-Farm Employment should be tracked until the 2nd quarter of 2023
The Non-Farm Payrolls report is a must-watch for many, as it sheds light on employment figures in the United States. As we enter the second quarter of 2023, the employment situation in the US is brisk and the Fed does not have to worry about this side of its double mandate (keeping full employment and inflation close to the 2 percent target). Impressively, NFPs have exceeded market expectations in the last 11 releases. So far, job growth has remained strong enough to keep jobless claims and the unemployment rate relatively low. However, some factors indicate that the labor market is losing momentum. These include:
- Moderate employment growth in the private sector
- Slowdown in the Bureau of Labor Statistics (BLS) private sector employment diffusion index
- Fall in manufacturing employment in February
- BLS’s manufacturing employment diffusion index turned negative in February
- Fed branch surveys show continued weakness in key manufacturing and services indicators
- Continued moderation in average hourly earnings growth
- Continued moderation in turnover rate
It should come as no surprise that the labor market has weakened as the Fed aggressively tightens monetary policy. Just as the Fed’s loosening of monetary policy encourages an explosion in economic activities, the Fed’s tightening of monetary policy encourages a collapse. Contrary to many people’s expectations for a soft landing or no landing scenario, the extent of the Fed’s tightening has resulted in a year-on-year decline in the money supply. According to experts, this indicates that the US economy may be approaching a particularly negative economic shock. The labor market is getting less and less tight, which is one of the conditions for a pause in the Fed’s rate hike. The Fed, however, wants to see core inflation slow further.
Trading of NFPs announced after the holidays
While it’s rare for NFPs to coincide with a holiday, it still happens. The last three years for which the employment report falls on this holiday are 2021, 2015 and 2012. So on average it happens every three years. The ranking can help give you an idea of what might happen with price action:
- In 2021: The number was a boom of 900,000 against the expected 600,000 and was a strong surprise. USD/JPY had a range of only 20 pips. EUR/USD had a range of 37 pips.
- In 2015: The recorded number of 126 thousand against the expected 244 was very bad. USD/JPY moved in a range of 110 pips, a big move from an NFP report released on holiday. EUR/USD showed a smaller but big move of 75 pips.
- In 2012: A range of 130 pips was recorded in USD/JPY. EUR/USD had a range of 30 pips.
How does the Non-Farm Employment data affect Fed expectations?
In 2021 the Fed was transparent about what it was doing and the market had a complete discount. The Fed was waiting for policy actions. As for 2015 and 2012, the market was more at a crossroads as they were not so short and the NFP report played a large role in influencing positioning and market expectations. The same is true in the market right now. The market is divided against the possibility of a 25 basis point rate hike (against no rate hike) at the Fed’s May 3 meeting.
That means they’ll look very closely at NFP reports to reinforce their view that banking crisis concerns aren’t all that important to forward returns, or to cast doubt on another quarter-point move in May that the market is currently expecting. Strong growth in NFP data could point to warming inflation, which investors will analyze to determine the Fed’s next monetary decision.
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