Employment Reports
From FXPedia
Employment reports provide details on the number of people actively seeking employment and is usually expressed as a percentage of the workforce not currently employed. Statistics such as average earnings and the number of new jobs created during the period are often included and this helps analysts determine if a trend is developing. Results are also provided on industry sectors so it is possible to gauge how well areas like manufacturing and mining are performing in comparison to the national average.
An increase in unemployment is seen as a negative indicator as job losses are typically triggered by a lower demand for goods and services. The obvious impact of rising unemployment is a decline in consumer spending as unemployment benefits do not cover the full wages workers earned earlier; a reduction in spending is an immediate response by affected households.
Add to this the fact that workers currently employed but feeling vulnerable with respect to their continued employment, also typically reduce spending in a bid to boost savings to prepare for possible job loss. This behavior further reduces consumer spending and can actually fuel additional layoffs.
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How Employment Reports Affect the Markets
FX Market
FX market watchers look to the Central Bank’s monetary policy to see what will happen with respect to interest rates. If inflation is a concern, interest rates may be increased which often boosts the currency – if interest rates are cut, look for the currency to fall in relation to other currencies.
Bond Market
Low unemployment is considered an indication of a strong economy. However, if there are fears that inflation could be gaining hold, the Central Bank may increase interest rates in a bid to slow the economy which may put downward pressure on bond prices.
Stock Market
If employment is running at or near normal capacities, it suggests that companies are doing well and conditions are favorable for earning profits. Investors may see this as a signal to invest further in companies – particularly those in sectors identified in the employment reports as the most active in generating new jobs.
| Note: | You should be aware that employment statistics are widely-reported by the media and carry a great deal of political weight as governments are often judged on how well employment levels are maintained. For this reason, it is advisable to pay close attention to any comments by government officials that suggest a policy change is under consideration. |
Market Relevance
Very High – employment reports have an almost immediate effect on the markets as employment levels directly affect spending and future spending habits. If employment trends downwards, fewer people will have the means to purchase non-essential goods – if employment is increasing over the previous period, then spending is expected to increase.
Publication Frequency
Employment figures are reported monthly by most countries.
Volatility
Moderate to High – if employment results differ from the expected results, then the FX market in particular can see substantial swings.
