Introduction to the Jobs Report
The monthly jobs report from the U.S. Department of Labor provides a useful snapshot of how many jobs the economy created the previous month, how many people were unemployed, and what kind of wage hikes workers received. It also delivers an excellent snapshot of overall economic health. Released each month, the jobs report—or Employment Situation Summary—can have a significant effect on the financial markets.
Key Points of the Jobs Report
The jobs report provides the most comprehensive picture of nonfarm employment in the U.S. Interpreting the jobs report can be tricky and often depends on the larger economic context. The report often has an outsize impact on markets for a variety of reasons, including timing, scope, and significance. It’s often the first major economic report to be released in a given month, setting the scene for other reports that follow.
What is the Jobs Report?
Published by the Bureau of Labor Statistics (BLS) at 8:30 am ET on the first Friday of each month, the jobs report, aka the Employment Situation Summary, is an estimate of the total number of workers in the U.S. (minus farm jobs), their average hourly earnings, and the number of hours worked weekly. You’ll sometimes also hear the report referred to as the monthly nonfarm payrolls report. The BLS conducts two surveys to find the data: the establishment survey and the household survey.
The Establishment and Household Surveys
The establishment survey collects data from around 131,000 businesses and government agencies, representing an approximate 670,000 work sites to gauge the net change in aggregate payrolls. The household survey polls around 60,000 eligible households across a range of demographics to track key employment trends. Overall, the jobs report is the largest and most detailed account of monthly employment in the U.S. If you want a zoom-in and zoom-out angle on the inner workings of the labor market, this massive report can give you most of what you need.
What Does the Jobs Report Tell Us?
The summary at the top of the report feels like a deep dive, but it’s actually a synopsis highlighting the data that’s perhaps most relevant to investors. The summary is where you’ll find the total number of nonfarm jobs gained or lost in the previous month, as well as the unemployment rate. If you’re interested in knowing the sectors or industries that experienced notable employment gains, you’ll find this in the summary as well. The household survey provides a big-picture view of the labor force, including how many people are currently working or unemployed and looking for jobs.
Interpreting the Jobs Report
Given its timing, scope, and significance, the jobs report tends to be one of those market-moving reports. Sometimes the market reaction—up or down—can be short-lived. At other times, the moves can lead to a sustained trend. Understanding what the report indicates is key to using it to make more informed investment decisions. Is it a beat or miss? Traders who want to get an early jump on the market’s response will often focus on the nonfarm payrolls figures—specifically, whether it “beats” or “misses” what analysts are expecting.
Trends and Context
Looking back over several months’ employment reports, try to look for an uptrend or downtrend in employment growth. A rise in job numbers and a decline in unemployment are typically signs of an expanding economy. Shrinking job numbers and rising unemployment can indicate a slowing economy. An uptick in hours worked can be a sign of growing economic production, especially if consumer demand is rising. In some cases, businesses may need to hire more workers, and perhaps even increase wages.
Interest Rates and Economic Policy
Job expansion is a sign of economic strength, but it can also be a sign of an overheating economy. Consumer prices can start to boom along with economic growth. This indicates inflation, and if inflation rises too much, it’s not a good sign for the market. At such times, the Federal Reserve (the Fed) may raise interest rates to slow the economy down. Rising rates usually mean falling stock prices. Higher interest rates tend to discourage businesses and consumers from borrowing money. Without additional cash, businesses have less money to make improvements or to expand.
Conclusion
The jobs report’s impact on the financial markets isn’t always black and white. Interpreting the report can be as much an art as it is a science. But if you’re able to familiarize yourself with the report and get the hang of interpreting its data, it can be a crucial forecasting tool to help you make better long-term investment decisions. By understanding the jobs report and its various components, you can gain valuable insights into the state of the economy and make more informed decisions about your investments. Whether you’re a seasoned investor or just starting out, the jobs report is an essential tool to have in your toolkit.
