USA Employment Situation

Why is it important?

Employment basically represents the health of an economy. More workers mean more spending which helps businesses see higher revenue. Fewer workers mean less spending which eventually hurts businesses. Far fewer workers can bring recession to the economy. Employment data either tells investors to remove their capitals out to more favorable countries, or lure them to pour more capital into US economy.

It is the most influential and the most awaited piece of economic news. Because mainly this release presents the latest, freshest data of the whole US economy. The employment data of any month is available just a few days after it ends. With this hottest data available, economists will promptly branch their forecasts to other indicators such as interest rate and inflation. With such hot forecasts coming in, many speculators are going to try to anticipate and make some short-term profits.

How is it computed?

Each month US government sends Household Survey to 60,000 homes which cover a population of farm and non-farm workers, the self-employed, domestic helpers and even Americans working in Mexico and Canada. Information received in completed surveys is then generalized—scaled up—to represents the whole US population. There they have all the demographic and household employment data.

Besides households, 400,000 companies and government agencies are contacted through phone and mail to complete an Establishment Survey. These entities employ more than 40 million workers. Based on information received, Bureau of Labor Statistics works out the number of jobs lost and created in the latest month in all the sectors and industries. There they have completed employment data ready to be published.

Impact on Forex

More jobs mean healthier economy, and in healthy economy where people have more money to spend, the inflation rate naturally rises. Fed may then decide to hike interest rate to reduce inflation rate. Or if there’re fewer jobs, Fed may decide to lower interest rate to encourage borrowing to spur up the economy.

Higher interest rate, on the other hand, attracts global investors to buy and hold the dollar, which increase its market value. Lower interest rate will result in selling the dollar for favorable currency, which in turn decrease market value of dollar.

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