Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Jobs but no wages – a look at the non-farm payrolls report

After a dismal June non-farm payrolls report, when the US added just 138,000 jobs, will July’s number be equally unimpressive?

US employment
Source: Bloomberg

The issue for the US is that workers are becoming scarcer, but wages are not rising to reflect this. The 16-year low unemployment rate of 4.3% underscores how strong the recovery has been, but the fact is that most of those in the US who want a job have one. The March and April non-farm payrolls (NFP) numbers were cut by 66,000, a sign that the initial numbers for these months were even weaker than thought, while monthly gains have fallen to an average of 121,000 for the April – June period compared to 181,000 over the past year. Jobs growth was an average of 226,000 for 2015. We are now in a very different situation.

The unemployment rate continues to fall, but this is a reflection of how the labour force participation rate (the ‘U6’ measure, in technical terms) has stayed stubbornly below 63% in 2017. This figure is the percentage of employed and unemployed over 16 who are looking for a job. Some 40% of eligible workers, therefore have given up looking for work. The figure has been steadily falling since its peak in 1999, but reflects the departure of baby boomers from the workforce, along with the push to hire technically skilled workers, rather than the less qualified.

Average hourly earnings have only risen by 2.5% over the past year. This isn’t usually the case in a strong recovery, when wages tend to rise to reflect the lack of available candidates for jobs. This lack of wage growth means that inflation remains weak, and as the recent Federal Reserve minutes showed, a number of policymakers are becoming increasingly convinced that inflation will remain stubbornly low, potentially torpedoing the Fed’s plan to keep raising rates at a steady pace.

Tomorrow’s NFP report could have a bearing on the current strength of EUR/USD. The pair has been boosted by recent hawkish talk from European Central Banks (ECB) president, Mario Draghi, and a jobs report that points towards either renewed weakness in employment numbers or in wage growth could see the pair rise further as the dollar retreats from its gains earlier in the week.

Meanwhile, the other one to watch is gold. Its recent drop through key support at $1240 threatens to see greater losses, but a weaker USD could provide a much needed breathing space. A stronger greenback could see gold drop through $1214, the low from May.

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 writer