In August, Non-farm Payrolls (NFP) in the US rose 📈 by 315,000, surpassing the forecasted figures.
U.S. employers continued to add workers at a strong and remarkable pace for a country navigating turbulent waters, although job creation cooled noticeably compared to the start of the third quarter, when hiring activity surprised to the upside.
According to the U.S. Department of Labor, the economy generated 315,000 NFP in August, versus the 300,000 expected, following a downward revised increase of 526,000 in July. The unemployment rate, meanwhile, rose to 3.7% from 3.5%, but the uptick can be attributed to a jump in the participation rate, which climbed to 62.4% from 62.1% (more people returning to the labor force).
How did the markets react?
💰 The US Dollar has gone from strength to strength as G10 currencies falter after NFP results. In the current macroeconomic environment, the U.S. dollar is likely to positive bias, aided by attractive U.S. Treasury yields, comparatively speaking. While brief corrections cannot be ruled out, the path of least resistance appears to be higher. This means that the greenback, as measured by the DXY index, could keep bullish momentum and charge towards new multi-decade highs in the coming days and weeks 📅
Dow Jones Index, September 2nd hourly chart.
In addition, major stock indices like the Dow Jones ($DOW30) and Nasdaq ($NAS100) started a bullish rally after the release of the NFP data.
NASDAQ September 2nd hourly trading chart.
At the same time, EUR/USD has extended toward parity following the US NFP report, continuing yesterday’s rebound from 1.0024.
So, this is generally good news for the economy. And the positive market reaction was predictable 👍
Why does NFP affect the markets?
NFP tracks the number of job creation in the US, excluding farmworkers, primarily due to the seasonal nature of their jobs. The NFP aims to provide an insight into the employment situation that is better gauged by only including permanent job hires. 🇺🇸
Today’s results show that the labor market remains extraordinarily resilient and extremely tight, despite the various headwinds battering U.S. firms, including runaway inflation and rising interest rates. The report, which clearly defies the doom-and-gloom narrative, also suggests that widespread hiring freezes and major headcount reductions are not yet taking place, a vote of confidence in the outlook by Corporate America.
This benign scenario, however, could complicate the Fed’s efforts to quickly bring down inflationary forces via demand destruction, increasing the need for further rate hikes and reducing the probability of an early pivot in monetary policy.
📌 Accordingly, the current situation in the labor market is positive. But there is a higher probability of another key rate hike ahead. This could cause more volatility than we have now.
Summary
- U.S. employers added 315,000 payrolls in August, slightly above expectations of a gain of 300,000 jobs.
- Average hourly earnings climbed 0.3% month-over-month, prompting the annual rate to remain unchanged at 5.2%.
- DXY and major stock indices like the Dow Jones ($DOW30) and Nasdaq started a bullish rally after the release of the NFP data.
