Macroeconomic reports describing the economy as a whole are very important to analysts and investors. One sector of the economy though is followed more carefully than others – the labor market. When new jobs are added and unemployment decreases, individuals have more money to spend. That in turn spurs consumer spending, which drives prices of goods and services higher. It is the first sign of inflation. That is why the labor market data is so crucial for the equities and currency markets. The most important labor market publications I have described in the section below.
Unemployment Rate
The unemployment rate shows the percentage of total work force that is unemployed and actively seeking employment during the previous month. A falling trend has a positive effect on the nation's currency because working people tend to spend more money, and consumer spending makes up a large portion of GDP. This indicator is not regarded as very important by investors because traders generally view unemployment as a lagging indicator that gives little indication of the economy’s future performance.
The US unemployment rate report is published the first Friday of the month at 14:30 ET.
Nonfarm Payrolls
Nonfarm payrolls is the most awaited and the most important US labor market publication, which often times causes markets to move dynamically. This report measures the change in number of employed people during the previous month, excluding the farming industry. A rising trend has a positive effect on the nation's currency. Job creation is an important indicator of economic health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises. The EUR/USD, the major currency pair in the world, strongly reacts to readings that differ a lot from expectations.
The US nonfarm payrolls report is published by the US Bureau of Labor Statistics the first Friday of the month at 14:30 ET.
Average Hourly Earnings
Average Hourly Earnings measure the rate of inflation found in the wages paid to nonfarm workers. A rising trend has a positive effect on the nation's currency, which strengthens when inflationary pressures arise. When firms pay more to workers, they are likely to pass the higher costs to the consumer so prices increase. Investors view wage inflation as a leading indicator of consumer inflation.
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Adam Narczewski
X-Trade Brokers Dom Maklerski S.A.
adam.narczewski@xtb.pl