Crucial Economic Indicators In The USA - What Are Non-Farm Payrolls And Initial Jobless Claims?

Each country shares monthly, weekly and quarterly macroeconomic reports. The USA, as the largest economy in the world, also has individual indicators that are monitored by investors around the world. The most popular because it is published every week is Initial Jobless Claims. We can hear that in a given week the rod has been decreasing or, on the contrary - it has increased, but what does it mean?

 

Non-farm payrolls (NFP) - an important economic health measure

The nonfarm payroll, or simply the NFP, is always an important and influential event in the economic calendar.

 

The nonfarm payroll (NFP) report is a key economic indicator for the United States and represents the total number of paid workers in the U.S. excluding those employed by farms. The NFP data is normally released on the first Friday of every month.

 

Private and government entities throughout the United States are surveyed about their wages. BLS publishes non-farm payroll data on a monthly basis through a closely tracked employment report.

 

NFP releases generally cause large movements in the forex market. This is because traders always monitor the indicators to identify trends in economic growth A higher wage rate is generally good for the US economy as it indicates more jobs and faster economic growth. The expected change in wage data causes mixed reaction in the currency markets.When the nonfarm payroll differs significantly from the forecast, there is usually a reaction in the markets.

But how does NFP affect the Forex market specifically?

The effects of the NFP tend to be limited to currency pairs which involve the US dollar. If the results come in higher than expected, this tends to have a strengthening effect on the USD whereas, if the result comes in lower than expected, the USD will often weaken.

Industrial production (IPI) indicator explained

Industrial production refers to the output of industrial establishments and covers sectors such as mining, manufacturing, electricity, gas and steam and air-conditioning. It also measures production capacity, an estimate of production levels that can be sustainably maintained.

 

Industrial production and capacity levels are expressed as an index level compared to the base year. In other words, they do not express an absolute volume or value of production, but a percentage change in production compared to 2021.

 

Industry-level data is useful for managers and investors in specific industries. Fluctuations in the industrial sector are responsible for most of the change in overall economic growth.

 

The difference between GDP and IPI in the field that GDP measures the price paid by the end user, and thus includes the added value in the retail sector, which the IPI ignores.

 

Capacity utilization is a useful indicator of the strength of demand. Low capacity utilization or overcapacity signals weak demand. Politicians could read this as a signal that a fiscal or monetary stimulus is needed. On the other hand, high capacity utilization may act as a warning of an overheating of the economy, suggesting the risk of rising prices and asset bubbles.

 

Initial Jobless Claims - how investors use it?

Jobless claims measure how many people are out of work at a given time. Initial jobless claims represent new claimants for unemployment benefits. The claim requests a determination of basic eligibility for the Unemployment Insurance program. This report is published weekly.

 

Domestic unemployment claims are an extremely important indicator of macroeconomic analysis. As such, it is a good indicator of the US labor market. For example, when more people apply for unemployment benefits, it generally means that fewer people have jobs, and vice versa.

 

Investors can use this report to form an opinion on the country's economic performance. But this is often very volatile data as it is reported weekly. Markets can react strongly to the mid-month unemployment benefit report, especially if it shows a difference to the cumulative data of other recent indicators.

 

During the economic downturn caused by the spread of the COVID-19 virus, the weekly numbers of unemployed in the US rose to historic levels. We could observe that such a situation significantly influenced investors' decisions and market reaction.

Source: investopedia.com, investing.com