Why the Jobs Numbers Matter and How to Trade Them – Introduction
Every election season, politicians from around the world campaign on the promise of creating good, high-paying jobs. This is usually the most important thing that most people vote on. Parents vote for it because it will create more jobs for their children. Young people on the other hand vote for these policies because they will create jobs for them.
Investors too pay a close attention to the jobs numbers which are released every month by most developed countries. This is because when more jobs are created, it is usually an indication that the economy is doing well. This is more so when the number of jobs created are high paying. This is the reason why the US jobs day is usually one of the most important days in the market. The jobs day comes on the first Friday of the month.
Last week, the US released the jobs numbers for the month of September. This number is released by the labour department, which collects the data from the employers. The data showed that in September, the US added more than 138K jobs. This was lower than the 185K that traders were expecting. It was also lower than the 230K that Automatic Data Processing (ADP) had released two days before.
The headline number is usually very important because it shows how the economy is performing. Still, traders pay close attention to other details in the jobs report. First, they look at wage growth. Last week’s data showed that wages rose by 2.3%, which was lower than the 2.4% growth in August. This number is important because it tells you how well the people are doing. This is because when wages increase, the consumer confidence increases which leads to more purchases. The wages number is closely associated with the number of average week hours. This average currently stands at 34.5. The number is an indication of the number of hours people are working. Since they are paid per hour, an increase in the hours is an indication that they are making more money.
Second, they look at the unemployment rate. The data released last week showed that the unemployment rate decreased to 3.7%. This was lower than the previous reading of 3.9%. It was also the lowest level the rate has been in almost 50 years. This number usually shows the percentage of people of working age who are not at work. A reduction on this rate is usually very good. However, traders also look at the U6 unemployment rate that currently stands at 7.6%. The U6 is often called the official unemployment rate because it captures a larger net.
Third, they look at the participation rate. This rate shows the percentage of the population that is actively engaged in work. An increase in participation rate is usually a good thing for the economy. This is because it tends to increase the productivity of the population.
When the employment number is released, a few things can happen. A sudden improvement can lead to a stronger dollar as people start feeling good about the economy and the pace of rate hikes. As it does this, the yields on the treasuries might increase as people brace for more rate hikes from the Federal Reserve. As the rate increases, the performance of the stock market could move lower as people move to bonds.