The backbone of a country is its workforce, as an economy is mainly fuelled by its productivity. Productivity gives us an indication of the growth pace of an economy, particularly its level of spending. My high school economics teacher used to say “if America catches a cold the whole world sneezes” hence this article attests to that statement by discussing non-farm payroll which is an indicator of productivity.
The employment status is derived by the Non-Farm Payrolls data, which is aimed at telling us how many jobs, have been added in the economy to illustrate whether people are earning more or less than the previous month. This enables us to understand the amount of productivity in the economy in order to determine its growth speed. Non-farm payroll reports are released on the first Friday of the month and normally have a direct impact on the markets.
The total non-farm payroll accounts for 80% of the workers who produce the entire gross domestic product (GDP) of the United States (US). Hence it’s important to know the type of people being employed by looking at the U3 and U6.
- U3 is commonly known as the unemployment rate which is the number of people actively seeking a job.
- U6 includes discouraged, underemployed, and unemployed workers in the country.
Non-farm payroll also show which sectors are generating the most employment additions, this is often used by stock analysts to predict which stocks and sectors have strong earnings reports. The report also contains the average work week, average hourly earnings and wage growth, which signals a wage inflation outlook in the US.
Therefore an increase in earnings will lead to consumers spending more, which will lead to raised inflation, and in turn will lead to interest rates being increased in the US. Again, this will draw funds away from South Africa and other emerging markets, as the higher yields offered in the US will be more attractive for investors.
Well since the South African economy is driven by the global trends. If the jobs report beats expectations, the US dollar will strengthen anew, resulting in weak Rand. But where there is adversity there is opportunity, especially for securities traders who can profit from having a good market structure.
Non-farm payroll is one of the most anticipated economic indicators, though is important to remember that volatility is always enticing but caution should always be exercised.