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Non-Farm Payroll look-ahead

Non-Farm Payroll look-ahead

Thursday sees the release of the US Non-Farm Payroll (NFP) report for the month of June. As   experienced traders are aware, NFP data is often the most important economic release of the month and generally leads to a sharp increase in market activity and overall volatility. May’s report saw a stunning, - and unexpected - bounce-back in employment following the worst payroll report in history. The April number reflected the devastation caused by the coronavirus pandemic lockdown when the US suffered the loss of 20.5 million jobs. But there was widespread relief when the May data showed a net increase of 2.5 million, vastly better than the consensus forecast of further losses of 7.75 million jobs. However, the fact that the actual number was so different from the consensus expectation has concerned many observers. As a result, there has been considerable speculation that this week’s number may include negative adjustments to account for certain assumptions that were made in the depth of the crisis. Not only can big numbers see big accounting errors, but the pandemic itself has impinged on the ability of the US Bureau of Labor (sic) Statistics to collect accurate data.

It’s worth noting that  analysts are wary of getting too carried away by the May data. NFPs are notoriously volatile. And despite the good news of over 3 million private jobs being created in May (the public sector saw the loss of 585,000 jobs), there are still 18 million private employees, out of February’s figure of 130 million, who’ve lost their jobs.

This week’s number is undoubtedly another significant release, and fortunately it is unlikely to be a record-breaker in the way that the April release was. The consensus expectation is for job gains of 3 million, which would certainly represent further recovery in the data.

Checking our Smart News widget  dashboards - which break down social media comments and help identify patterns - from, we can see some interesting trends playing out.

We are seeing a sharp uptick in mentions of both ‘Unemployment Rate’ and ‘US Jobless Claims’. Despite the expectation of further pick-up in the NFP , commentators remain concerned with an unemployment rate still well above the 10% mark. The expectation is that it will come in around 12.5% - down from May’s 13.3% but still very high for the US in historic terms. As far as ‘US Jobless Claims’ are concerned, this is a weekly figure which many traders believe gives a far timelier, and accurate, picture of the US employment situation. This records the number of individuals who filed for unemployment insurance for the first time during the past week. Unusually, and due to the 4th July holiday falling on a weekend, this figure is being published on Thursday, along with the NFP. In early April it stood at over 6.6 million. It has fallen back sharply since then and it is currently forecast to come in at 1.35 million this week, suggesting the rate of improvement has flattened out. With the US seeing a pick-up in Covid-19 cases, the concern is that the employment situation could start to deteriorate once the summer is over.

The bottom line is that there’s a lot of data coming out at the same time and it’s going to be difficult to analyse it all quickly. It’s often said that the initial market reaction to data isn’t always the logical one. But it’s also the case that sometimes markets can move sharply in one direction without correcting significantly or quickly, so do be cautious over this release. Make sure you can access important data as quickly as possible by setting up a feed on our Smart News widget, which you can find on the right hand side of your trading platform.        




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