In-depth Analysis

NFP Day

US Non-farm #Payrolls easily beat analysts’ estimates of 250 000, adding 528 000 jobs in July, after creating 398 000 jobs last month (revised up from 372 000).

Here are other key takeaways from July’s #NFP report:

  • The unemployment rate is down to 3.5%, back to its February 2020 pre-pandemic levels.
  • Average hourly earnings increased 0.5% in July. All private nonfarm payroll workers’ average hourly wages increased by 15 cents to $32.27 last month. The average hourly wage has climbed by 5.2% over the last year. Inflation is therefore still an issue…
  • The jobs data revealed that employment growth accelerated compared to last month, by much more than expected. US Stock Indices are still up, mostly led higher by a reassuring earning season so far, but anticipations of a more aggressive monetary stance from the FED brought by this surprising NFP report may change market sentiment this week.
  • Treasury yields are up, after the NFP report blew past expectations, as this robust data suggests the Fed will continue being hawkish. Loretta Mester, Cleveland Fed President, said earlier this week that the Fed doesn’t envision an economic recession in the U.S., as it plans to continue increasing interest rates beyond 2023.
  • The EUR/USD currency pair has lost more than 0.89% after the NFP release and is trading around 1.0152 at the time of writing.

Nonfarm payroll employment climbed by 528,000 in July, largely higher than the average monthly gain over the previous three months, despite predictions of a recession sparked by record-high inflation.

According to the last published gross domestic product (GDP) figures by the Commerce Department last week, the GDP of the United States decreased at an annual rate of 0.9% during the months of April and June 2022, after a 1.6% annualized decline during the first quarter. This is the second consecutive quarter in which the economy has contracted, mostly due to high inflation, tightening credit conditions, decreasing home sales, and slowing job growth, amid other headwinds.

After reaching a 50-year low of 167,000 in April, the number of weekly unemployment claims progressively surged to a new high of 260,00 last week. But even though job growth is showing signs of slowing down on that front, the U.S. added around 2.7 million jobs since the beginning of the year, supporting consumer spending. Moreover, last month’s employment report strongly indicates that employers may not have lost as much confidence in the general situation as analysts assumed they might have.

It also shows that the Federal Reserve may have the flexibility to hike interest rates more aggressively…last month, the Fed raised its benchmark interest rate by 0.75 percentage points, bringing the total to a range of 2.25% to 2.5%. This was the second straight rise by this amount – its most significant rate hike since the early 1990s, taking the Fed funds rates to their highest level since December 2018.

As today’s NFP report confirms that the job market is more than resilient, the Fed might keep increasing interest rates to fight inflation – even though it might hurt U.S. growth prospects in the future. How do you think it will affect the markets?