US NFP (nonfarm payrolls) report preview: 6 October 2023 (12:30 UTC)
The US NFP report is an important data release that is closely monitored by the Federal reserve (the US central bank).
Although this particular report is considered to be a lagging economic indicator (it reports on the job data from the previous month), it is still considered to be a key barometer of growth for the US economy.
Understanding the NFP report: What do the terms mean?
Headline NFP number:
- Represents the monthly change in the number of paid workers entering the US labor market
- Farm workers, the federal government, private households and those employed by non-profit organizations are excluded from the report).
Unemployment rate:
- The percentage of the population who have been actively seeking work over the past four weeks (and who are willing and available to work).
Average hourly earnings:
- The monthly percentage change in wages earned by workers (on an hourly basis).
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Monetary policy and NFP’s
The Federal Reserve (United States central bank) is responsible for controlling the supply of money in the economy through monetary policy (interest rates, buying/selling securities in the open market).
The objectives of the US central bank (the Fed) are:
- Achieving price stability (an inflation target of 2%)
- Maintaining a full level of employment (an unemployment rate below 4%)
Since inflation remains well-above the 2% target, a tight labour market could influence the Fed’s decision of whether or not interest rates should remain at current levels or if another 25 basis point rate hike may be warranted.
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