A look ahead to February’s non-farm payrolls

It was a storming US non-farm payroll number last month, as the world’s largest economy started the year on a strong note. Can that momentum be maintained, and are there other elements that we should be watching? 

People at a jobs fair
Source: Bloomberg

Job growth in the US was far ahead of expectations in the last payroll report, coming in at 257,000 for the month of January. This month 235,000 jobs are expected to have been created, while the unemployment rate dips slightly to 5.6%.

Despite this, it is becoming to be the received wisdom that the powerhouse of the world will hit ‘full employment’ by the end of 2015 (i.e. lowest rate of joblessness that does not create excessive inflation). Regional Federal Reserve president John Williams recently observed that the unemployment rate will reach 5%, thanks to increasing consumer spending.

Revisions to December’s number meant that the US actually created the largest number of jobs in 2014 for fifteen years, which has shifted expectations regarding the outlook for interest rates in the US. It is possible we will see a rate increase from the Fed during the summer, possibly as early as June. However, the possibly bearish implications this has for stocks is likely to be offset by the European Central Bank’s quantitative easing operations, which will be in full swing by the summer of this year.

It is important to note that job growth in the US is not an even picture. Government jobs continue to see a small decline, while the best areas for growth have been in construction and social assistance. In addition, ‘quit rates’, i.e. the number of people resigning, have yet to hit pre-crisis levels in most industries. In fact only mining and logging, beneficiaries of the strong performance of the oil sector, have seen higher quit rates, and with oil’s precipitate fall this is likely to be reflected in the numbers this Friday.

An increase in minimum wages across many US states in January helped push up wages in the private sector during the month as well, boosting the average wage figures that are released at the same time. Research from the US Conference Board suggests that younger employees are seeing faster wage rises than their older counterparts. Previous performance suggests this positive trend will spread to other age brackets in time, which will arguably complete the picture for a Fed looking to raise rates.

Finally, keep an eye on the participation rate – the number of workers that have given up looking for jobs. This continues to fall along with the overall rate, which signals greater weakness than a declining headline number would indicate. Fewer Americans seeking work means a smaller pool of unemployment, making figures look better than they actually are. If the participation rate starts to rise, we can be sure that the US economy really is getting back to full health.

There are a number of factors to monitor when non-farm payrolls are released, and it will take time for the market to digest them. It is likely however, that barring any sudden slump in job numbers, this Friday’s number will be taken as yet another step on the road to a Fed rate hike. 


Follow the action, live

Join  Chris Beauchamp in our monthly live webinar as he tracks the markets' reaction to the next non-farm payrolls announcement, scheduled for 12.45pm (London time) Friday 6 March.

Sign up now

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.