WIKIFX REPORT: NFP Day

NFP COMMENT

The Nonfarm Payrolls (NFP) are among the biggest market movers in the Forex markets and probably the most-watched Forex news item, together with central bank events or interest rate decisions. US Non-farm Payrolls slightly beat analysts estimates of around 300,000, adding 315,000 jobs in August after creating 526,000 jobs in July (revised down from 528,000). The change in total NFP was also strongly revised down for June, from 398,000 to 293,000.

Here are other key takeaways from the August employment report:

• The number of unemployed persons increased to 6 million.

• The unemployment rate is up by 0.2 percentage points from 3.5% to 3.7%.

• Average hourly earnings increased 0.3% in August. All private nonfarm payroll workers average hourly wages increased by 10 cents to $32.36 last month. The average hourly wage has climbed by 5.2% over the last year.

• The jobs data revealed that employment growth slowed down compared to last month, but less than expected.

American stock-indexes are up, as the employment report roughly came in as expected. Worries about the fact that a much tighter labor market would have triggered an even more aggressive Federal Reserve response are slightly fading.

At its last meeting in July, the Fed increased the target range for the federal funds rate by 75 basis points (bps), bringing it up to 2.25-2.5%, bringing the interest rates to their highest level since the Covid-19 pandemic. Market participants still expect the FOMC to vote for a 75-point rate hike later this month.

The Fed between price stability, maximum employment, and recession risks

The U.S. central bank, the Federal Reserve, has a dual mandate: to work to achieve low unemployment and to maintain stable prices throughout the economy. As Jerome Powell declared in the last Jackson Hole symposium, it will take time to restore price stability in the United States. The Fed has said it is ready to use its monetary policy instruments in a decisive and forceful manner until inflation truly slows down. Powell also declared that a period of slower than average growth is likely to occur in order to bring inflation down.

Based on the “second” estimate provided by the Bureau of Economic Analysis, the real gross domestic product (GDP) saw a reduction that resulted in a rate of 0.6 percent annually in the second quarter of 2022, after a drop of 1.6 percent in the first quarter of the year. Even though the real GDP decreased less in the second quarter than in the first quarter of 2022, the economy is still contracting and facing increasing headwinds due to ramping inflation, upcoming rate hikes, and slowing consumer spending because of fewer jobs, among others. Up to now, the job market has been resilient to the Feds actions, and companies seem to be keeping up with the hiring pace.