Welcome to the Investors Trading Academy event of the week. Each week our staff of analysts and educators tries to provide you a better understanding of a major market event scheduled during the next week. This week we will focus on the upcoming nonfarm payroll release scheduled for Friday, March 6th.
Although this event is one of the most important and volatile market releases each month, this month it will carry more significance. After last week’s grilling of Janet Yellen by US lawmakers at the Senate Bank Committee, the outcome is that the Fed is considering an interest rate increase and will change its forward guidance before making a decision to start raising its lending rates. The labor market and unemployment rate is one the most influential factors that the Fed will review.
About 238,000 jobs are expected to have been added in February, according to the non-farm payroll report that will be released on Friday down from the 257,000 added in January. Investors will be watching Friday's monthly non-farm payrolls report for signs that momentum remains in the world's largest economy. Payrolls are expected to have swelled by 238,000 positions, with the unemployment rate projected to decline to 5.6 per cent. Average hourly earnings are thought to advance 0.2 per cent from the previous month.
Why is this report important?
The February jobs report will receive extra scrutiny as the Federal Reserve prepares to lift rates for the first time since the financial crisis. February employment will be the litmus test for how long the Fed will remain patient.
The difference between the actual non-farm data and expected figures will determine the overall effect of the data on the market. If the non-farm payroll is expanding, this is a good indication that the economy is growing, and vice versa. However, if increases in non-farm payroll occur at a fast rate, this may lead to an increase in inflation. In forex, the level of actual non-farm payroll compared to payroll estimates is taken very seriously. If the actual data comes in lower than economists' estimates, forex traders will usually sell U.S. dollars in anticipation of a weakening currency. The opposite is true when the data is higher than economists' expectations.
Out of the payroll data that is provided, the most important statistic that is analyzed is the non-farm payroll data, which represents the total number of paid U.S. workers of any business, excluding general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals, and farm employees.
By Barry Norman, Investors Trading Academy