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#Post#: 265--------------------------------------------------
Employment Situation
By: fxvictory Date: December 10, 2014, 9:34 pm
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Definition
The employment situation is a set of labor market indicators
based on two separate surveys in this one report. The
unemployment rate equals the number of unemployed persons
divided by the total number of persons in the labor force, which
comes from a survey of 60,000 households (this is called the
household survey). Workers are only counted once, no matter how
many jobs they have, or whether they are only working part-time.
In order to be counted as unemployed, one must be actively
looking for work. Other commonly known figures from the
Household Survey include the labor supply and discouraged
workers.
The Establishment Survey-a survey of over 557,000 worksites-
provides additional indicators. Nonfarm payroll employment is
the most popular and well-known indicator from this survey.
Business establishments in the nonfarm sector report the number
of workers currently on their payrolls. Double counting occurs
when individuals hold more than one job. Workers on strike
during the relevant week are not included in the figures.
Due to sizeable swings in payroll employment during 2010 for
hiring and then layoffs of temporary workers for the
decentennial Census, analysts started giving essentially equal
attention to private nonfarm payrolls as to overall payrolls.
This added focus continued even after temporary Census worker
issues were no longer a problem as the long-duration recession
caused state & local governments to cut their workforce even as
the private sector began to rehire during recovery.
The average workweek is a leading indicator of employment.
Businesses tend to adjust total hours worked by increasing or
decreasing the workweek before hiring someone new or laying
someone off. These figures come from the Establishment Survey.
Average hourly earnings are monthly payroll figures reported
before deductions for taxes, social insurance and fringe
benefits. They include pay for overtime, holidays, vacation and
sick leave. These figures come from the Establishment Survey.
Why Investors Care
If ever there was an economic report that can move the markets,
this is it! The anticipation on Wall Street each month is
palpable, the reactions can be dramatic, and the information for
investors is invaluable. By digging just a little deeper than
the headline unemployment rate, investors can take more
strategic control of their portfolio and even take advantage of
unique investment opportunities that often arise in the days
surrounding this report.
The employment data give the most comprehensive report on how
many people are looking for jobs, how many have them, what
they're getting paid and how many hours they are working. These
numbers are the best way to gauge the current state as well as
the future direction of the economy. Nonfarm payrolls are
categorized by sectors. This sector data can go a long way in
helping investors determine in which economic sectors they
intend to invest.
The employment statistics also provide insight on wage trends,
and wage inflation is high on the list of opponents of easy
monetary policy. Fed officials constantly monitor this data
watching for even the smallest signs of potential inflationary
pressures, even when economic conditions are soggy. If inflation
is under control, it is easier for the Fed to maintain a more
accommodative monetary policy. If inflation is a problem, the
Fed is limited in providing economic stimulus.
By tracking the jobs data, investors can sense the degree of
tightness in the job market. If wage inflation threatens, it's a
good bet that interest rates will rise; bond and stock prices
will fall. No doubt that the only investors in a good mood will
be the ones who watched the employment report and adjusted their
portfolios to anticipate these events. In contrast, when job
growth is slow or negative, then interest rates are likely to
decline - boosting up bond and stock prices in the process.
Importance
The employment situation is the primary monthly indicator of
aggregate economic activity because it encompasses all major
sectors of the economy. It is comprehensive and available early
in the month. Many other economic indicators are dependent upon
its information. It not only reveals information about the labor
market, but about income and production as well. In short, it
provides clues about other economic indicators reported for the
month and plays a big role in influencing financial market
psychology during the month. Additionally, the Fed has made 6.5
percent unemployment a threshold for considering changes in
policy - both for quantitative easing and the fed funds rate.
And the Fed has emphasized that it is overall labor market
conditions that matter - not just a specific number.
Interpretation
The bond market will rally (fall) when the employment situation
shows weakness (strength). The equity market often rallies with
the bond market on weak data because low interest rates are good
for stocks. But sometimes the two markets move in opposite
directions. After all, a healthy labor market should be
favorable for the stock market because it supports economic
growth and corporate profits. At the same time, bond traders are
more concerned about the potential for inflationary pressures.
The unemployment rate rises during cyclical downturns and falls
during periods of rapid economic growth. A rising unemployment
rate is associated with a weak or contracting economy and
declining interest rates. Conversely, a decreasing unemployment
rate is associated with an expanding economy and potentially
rising interest rates. The fear is that wages will accelerate if
the unemployment rate becomes too low and workers are hard to
find.
Nonfarm payroll employment indicates the current level of
economic activity. Increases in nonfarm payrolls translate into
earnings that workers will spend on goods and services in the
economy. The greater the increase in employment, the faster is
the total economic growth. When the economy is in the mature
phase of an expansion, rapid increases in employment cause fears
of inflationary pressures if rapid demand for goods and services
cannot be met by current production.
When the average workweek trends up, it supports production
gains in the current period and portends additional employment
increases. When the average workweek is in a declining mode, it
probably is signaling a potential slowdown in employment
growth-or even outright declines in employment in case of
recession.
Gains in average hourly earnings represent wage pressures. It is
worth noting that these figures aren't adjusted for overtime pay
or shifts in the composition of the workforce, which affects
wages on its own. Market participants believe that a rising
trend in hourly earnings will lead to higher inflation. But if
increased wages are matched by productivity gains, producers
likely will not increase product prices with wages because their
unit labor costs are stable.
Frequency
Monthly
Source
Bureau of Labor Statistics (BLS), U.S. Department of Labor.
Availability
Usually the first Friday day of the month. However, the official
rule is that estimates for a given reference month are typically
released on the third Friday after the conclusion of the
reference week; i.e., the week which includes the 12th of the
month. This occasionally results in a release date on the second
Friday of the month.
Coverage
Data are for the previous month. Data for June are released in
July.
Revisions
Yes. Monthly revisions for payroll data go back two months and
annual revisions are released in February with January data.
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