The January 2023 Nonfarm Payrolls (NFP) report has just been released, showing staggering 📈 517,000 jobs added, far exceeding the expected 185,000.
In addition, there was published data on wages. Specifically, the annual Average Hourly Earnings (AHE), a measure of wage inflation, came in at 0.3% (m/m), below the estimated 0.4% (m/m) by analysts. However, there is positive news on other fronts. The Labor Force Participation Rate improved to 62.4%, and the Unemployment Rate decreased to 3.4% from its previous 3.5% in December.
These key indicators, combined with the significant increase in Nonfarm Payrolls, paint a promising picture for the US job market.
What is NFP and why it affects the markets
NFP stands for Non-Farm Payrolls, which is a monthly release by the Bureau of Labor Statistics that measures the number of jobs created in the US economy, excluding farm workers, government employees, and non-profit organizations.
This data release is considered one of the most important indicators of the strength of the US labor market and has a significant impact on financial markets. The NFP release affects assets such as the Dollar Index, US stocks, and other assets as it provides insight into the economy's health, affecting interest rates, inflation expectations, and investment decisions.
For example, a strong NFP release often leads to an increase in the Dollar's value, a boost in US stock indices like the S&P 500 ($SPX500), Dow Jones ($DOW30), and the NASDAQ ($NAS100), and a decrease in the demand for safe-haven assets such as Gold.
On the other hand, a weak NFP release can lead to a decrease in the value of the Dollar and a drop in US stock indices, causing investors to seek safer investments.
How markets reacted to the January NFP release
It should be noted that the US Dollar Index took the news of the rapid increase in the US NFP very positively, rising several points at once and recovering the previous week's losses.
It is predicted that the growth of the dollar index may continue for some time, which will also affect the rates of currency pairs such as $GBP/USD and $EUR/USD, which are falling against the growth of the American currency.
At the same time, the US indices and $Gold have not been supported by US employment growth, so the major assets, including $Gold, have started to fall steadily.
It is not yet clear how long this market reaction will last. But it can still be used in your trading strategies.
In addition, employment growth was reported across the board, mainly due to growth in leisure and hospitality, professional and business services, and health care. Government employment also increased, partly reflecting workers' return after the strike.
It remains to be seen whether this trend will continue next month.
Summary
- US Payroll report smashes forecasts with 517,000 new jobs created in January.
- The annual wage inflation, as measured by Average Hourly Earnings, came in at 4.4%, compared to analysts' estimate of 4.9%.
- The US Dollar gathered strength against its rivals with the initial reaction.
- Gold started to decline after the NFP release.
