Forex Walkthrough


Level 5 Economics - The Employment Situation Report

As you've learned throughout this walkthrough, the forex market is effected by many different economic and non-economic factors. We've taken a look at each of the major currencies and the forces and governing bodies that drive their movement. One of the biggest drivers of a nation's currency is unemployment. Let's take an in depth look at the two most important economic releases in the United States when it comes to unemployment.

The Employee Situation Report

Release Date:
The first Friday of the month
Release Time:
8:30am Eastern Standard Time
Previous month
Released By:
Bureau of Labor and Statistics (BLS)
Latest Release:

The Employment Situation Report, commonly known as the Labor Report, is an extremely broad-based indicator which is released by the United StatesBureau of Labor Statistics (BLS). The report is made up two separate surveys. The first, the "establishment survey", is a sampling from over 400,000 businesses across the country. It is widely regarded as the most comprehensive labor report available in the nation, covering about 30% of all non-farm workers nationwide, and offers statistics including non-farm payrolls, hours worked and hourly earnings. This is huge in both size and breadth, with statistics covering over 500 industries and hundreds of cities.

The second survey, known as the "household survey", collects statistics from more than 60,000 households and produces an estimated figure which represents the total number of Americans out of work, and from that the national unemployment rate. The data is compiled by the U.S. Census Bureau and the Bureau of Labor Statistics. This allows for a census-like component, adding demographic shifts into the equation, giving the results a different perspective.

Both sets of survey results will show the change from the previous month, and also year-over-year, as trendlines are very important with this often volatile statistic.

What it Means for Investors
The Employment Situation Report is a multi-layered release, with many links from the main page which follow the headline discussion items. Since there is so much information in this report, it's important to identify the numbers that are the most important.

Non-Farm Payroll
The non-farm payrolls figure is very, very important on Wall Street; it's considered the benchmark labor statistic, and it's used to determine the health of the job market because of its huge sample size and historical track record in accurately predicting business cycles. Generally, economists have settled on the number of 150,000 new jobs as the level that defines economic growth. An increase of about 150,000 jobs or more indicates an expansion of the labor force, while anything below points to a weak job market.

These payroll figures from the establishment report are considered a coincident indicator.

Each of the above mentioned surveys comes up with its own figures for the total amount of employed Americans using very different methods. The establishment report is much larger, and is widely regarded as more accurate. However, this survey excludes private households, self-employed individuals and the agricultural sector. The household report runs on a smaller sample and is more subjective, but the inclusion of self-employed workers, for example, can make this figure more valuable in a time when many people are starting their own business, which is often the casein the beginning of a new business cycle.

The unemployment figures from the household report (which is probably the most watched segment of the release after non-farm payrolls) are considered a lagging indicator, since people tend to be out of work when problems in the economy have already manifested themselves in falling economic output (less workers & less GDP). (For more insight, read What are leading lagging and coincident indicators?)

A good forex trader will study the labor report to look for trends in disposable income, wage inflation and employment statistics, as all of these factors can have an affect on currency movement. Analysts will usually conclude that if payrolls are increasing and wages are rising, that personal consumption stats like retail sales will advance as well, as more money will be in the pockets of consumers, which generally means that the dollar will perform well against its peers.

The Federal Reserve
The Fed watches this report very closely. The Fed's former chairman Alan Greenspan used most of his allotted minutes during all those years of Senate briefings discussing the labor markets, quoting figures from the benchmark Labor Report. The unemployment rate alone accounts for close to 50% of the lagging index created by the Conference Board and used by the Federal Reserve Board.

The household survey accounts for demographic changes to some degree, whereas the establishment survey only counts the total number of payrolls. Therefore, the household survey acts as sort of a mini-census, which is why the same employment report can show an increase in payrolls, while the unemployment rate rises as well, which can seem like a contradiction to those not familiar with the report.

The number of hours worked data can also be a bell-weather of where the economy is in the business cycle; quite often companies will try to stretch the hours of their current workforce before they go into the job market and hire new workers. Such conservative behavior is known as "testing the waters" of the economy before committing to hiring for future growth.

While labor statistics can tell us a lot, they do not necessarily define the economy. Many industries can be well positioned to remain profitable even during tough labor markets - financial services, for instance, can easily lay off workers and keep labor tight until conditions improve, while more capital-intensive industries such as manufacturing (with its higher fixed cost structure) may suffer bigger hits in profitability. The key is to use all the information presented to make an educated opinion of where you feel certain currencies are headed as a direct result of these unemployment numbers.

Strengths Of The Labor Report:

  • As one of the most widely watched reports, the Employment Situation Report gets a lot of press and can move the forex markets.
  • Summary analysis provided by the BLS (top link on the site) on the top-level release of an already detail-rich report
  • Relates to investors on a personal level; everyone understands having a job or looking for work.
  • Service industries are covered here - it is hard to find good indicator coverage of service-based businesses.

Weaknesses Of The Labor Report:

  • Summer and other seasonal employment tends to skew the results.
  • Only measures whether people are working; it does not take into account whether these are jobs the people wish to have, or whether they are well-suited to workers' skills.
  • Volatile; revisions can be quite large, and updates should always be viewed in the most recent report.
  • Unemployment and payroll figures can seem to be out of alignment, as they are derived from two different surveys.
  • Compensation costs portion is considered inferior to the Employment Cost Index.
Jobless Claims Report
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