It's a big week for March employment data in the US this week. There's the ADP Employment Change for private employment numbers, the Unemployment Rate, official Nonfarm Payrolls from the Bureau of Labour Statistics, and the Average Earnings to be released, among others.
With interest rates still climbing and inflation remaining stubborn, the Federal Reserve (Fed) will be hoping that the jobs market is starting to show signs of slowing after months of tight conditions and strong demand. Let's take a look at what we can expect from this week's employment data and how you can capitalize on the news as an investor or an active trader.
Employment data: February recap
The official Nonfarm payrolls experienced surprising growth last month, with the addition of 311K jobs to the US economy in February. This came on the heels of a number of jobs generated in January that was revised down to 504K.
Significant increases in employment were seen in the leisure and hospitality sector (105K), particularly in establishments service food and beverages (70K), the retail trade (50K), particularly in the general merchandise retailers (39K), the government sector (46K), the professional and business services sector (45K), the health care sector (44K), and the construction sector (24K).
The readings continue to indicate that the labor market is in a tight state, with the economy creating an average of 343K new positions per month during the previous six months. It is also much over the 100K each month that is thought to be essential to keep up with the rise in the number of people of working age.
Average hourly wages for all workers on US private nonfarm payrolls climbed by 4.6% year-on-year in February, up from 4.4% in the preceding month but slightly below market predictions.
Despite all of this, the Unemployment Rate edged up slightly to 3.6% from a decades-low rate of 3.4% seen in January.
What do analysts expect for the March NFP report?
According to economists at Reuters, it's fairly likely that this coming report will show an increase of more than 200K jobs for last month. Still much higher than average, but at a slower pace than the previous two months.
Pimco anticipates that the uptick in layoff announcements that began in January will not be completely reflected in the jobs report until April. The US Department of Labour requires that large-scale layoffs in the US need 60 days' notice from organisations with more than 100 workers, where the loss of employment affects more than 50 people.
Layoffs of this size seem to have begun around late January, just outside the survey period for this particular report's 60-day notice requirement. Like in the case of Microsoft, which stated on January 18 that 10,000 workers would be let go, or Alphabet, the parent company of Google, which revealed on January 21 that it was laying off 6% of its worldwide staff, or around 12,000 people for example.
How can you trade the NFP?
Simply put, increases in the Nonfarm payroll data indicate more job creation across nearly all categories, which means economic expansion in the US. On the other hand, if the NFP data indicates that the monthly job creation is less important than expected, then it could mean that the US economy might be slowing down.
Investors and currency traders anticipate a monthly increase of at least 200,000 jobs for March. As a result, the U.S. dollar will usually strengthen if the actual number is higher than expected. On the flipside, the dollar usually takes a hit when the job situation worsens. If the nonfarm payrolls indicate a drop below growth of the 200,000 anticipated, investors would likely see the U.S. economy as sluggish and seek better yielding currencies to trade against the dollar (it all comes down to interest rate differentials).
When the market has digested the early movements triggered by the NFP data, it will determine which direction to go. You may possibly benefit from the massive price movement that happens every time the NFP data is announced. But you can also wait for the momentum to emerge and trade the movement after the volatility peak.
Both techniques can be risky if you’re wrong. That’s why you should always limit your losses by using a stop loss. If you’re not risk-averse and do not have an active trading strategy, avoid trading when the NFP is released.
However and whatever you choose to trade, it's best to be sure that your strategy aligns with your long term goals, and you never put yourself in a position where you invest more than you’re willing to lose. You should also use a regulated broker that provide competitive and safe trading conditions to implement your trading strategy such as ActivTrades.
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