Release: 7th January—08:30 AM EST – 1:30 PM GMT
Reading time: 8 minutes
Welcome to 2022. Happy New Year.
It’s that time of the month again.
Two comprehensive surveys provide economists, investors and traders a snapshot of the employment situation in the United States at the beginning of each month, measuring employment trends and current levels. Due to its timeliness, accuracy and importance within the broader economy, the employment situation report is closely monitored across the investment space.
The Household Survey, or Current Population Survey, calculates labour of the civilian noninstitutional population.
The Establishment Survey, often referred to as the Payroll Survey, measures employment, hours and earnings in the non-farm sector.
- The Household Survey derives data from approximately 60,000 households, led by the Bureau of Census for the Bureau of Labour Statistics, or BLS. The survey includes farm, non-farm, self-employed (unincorporated) and domestic helpers.
- The Establishment Survey tends to capture the spotlight. Through the Current Employment Statistics (CES), each month the program contacts approximately 144,000 businesses—representing nearly 700,000 worksites—targeting the payroll of non-farm businesses, non-profit groups and government organisations across the United States.
In most cases, the non-farm payrolls report (derived from the establishment survey) attracts the majority of attention, often vibrating financial markets. A favourable number (generally considered USD positive) reveals additional jobs were added to the economy, while a negative value (often viewed as USD negative), displayed as -100k or -90k, for example, informs that jobs were lost in non-farm business.
Non-Farm Payrolls Employment Change
Employment is considered a leading indicator of consumer spending.
The non-farm payrolls release is a measure of new payrolls added by private and government organisations in the US, reported each month by the Bureau of Labour Statistics (BLS).
425,000 non-farm payrolls are to be added to the US economy in December, according to Bloomberg’s median estimate. However, the current range is between 850,000 and 150,000, with an average of 438,000.
The unemployment rate, also referred to as ‘joblessness’, is a closely followed economic indicator. The unemployment rate is derived from a monthly survey called the Current Population Survey (CPS), made up of approximately 60,000 households.
The US unemployment rate dropped to 4.2 percent in November 2021, sliding from 4.6 percent in the previous month. Unemployment is to tick lower again in December to 4.1 percent, according to Bloomberg’s median estimate. The average estimate is 4.1 percent with a high-low range set between 4.4 percent and 4.0 percent.
Average Hourly Earnings
Calculated by the BLS (establishment survey data), average hourly earnings measure the amount employees make each hour in the US. Average hourly earnings for US non-farm employees is a leading indicator of consumer inflation and also the earliest data in terms of labour inflation.
Average hourly earnings increased 8 cents, or 0.3 percent, to $31.03 in November 2021, a touch under market estimates of 0.4 percent (and just below October’s 2021 0.4 percent print).
December’s 2021 release, however, is anticipated to tick higher to 0.4 percent, according to Bloomberg’s median estimate. The average estimate is also 0.4 percent with a high-low range set between 0.5 percent and 0.2 percent.
Focus is likely to be on other components of the US Employment Situation report, rather than the headline non-farm payrolls number: the unemployment rate, the labour force participation rate and also wages—average hourly earnings. This is largely due to the hawkish minutes of the US Federal Reserve’s December session.
The minutes indicated the bulk of FOMC members feel an accelerated pace of interest rate hikes may be in the offing sooner than expected, closely followed by a runoff of the Fed’s balance sheet. FOMC participants also underlined that the omicron variant is unlikely to modify the economic recovery.
Private sector employment in the US jumped 807,000 in December, according to the ADP National Employment Report on Wednesday. The chart below emphasises the gain.
‘December’s job market strengthened as the fallout from the Delta variant faded and Omicron’s impact had yet to be seen’, said Nela Richardson, chief economist, ADP. ‘Job gains were broad-based, as goods producers added the strongest reading of the year, while service providers dominated growth. December’s job growth brought the fourth quarter average to 625,000, surpassing the 514,000 average for the year. While job gains eclipsed 6 million in 2021, private sector payrolls are still nearly 4 million jobs short of pre-COVID-19 levels’.
It’s important to note that while some consider ADP a forerunner to today’s headline NFP event, the correlation between the two indicators can be sub-standard at times.
Unemployment Claims out of the US on Thursday totalled 207,000, up from the previous week’s 200,000 reading. While not an entirely positive report, initial filing remains under levels prior to the Covid-19 pandemic. According to the Department of Labour, the 4-week moving average was 204,500, an increase of 4,750 from the previous week’s revised average. The previous week’s average was revised up by 500 from 199,250 to 199,750.
FP Markets Technical Outlook
US Dollar Index (ticker: DXY)
Support at 95.86—boasting a strong historical significance—has served immediate flow well since mid-November 2021. What’s also technically relevant is current price action forming either an ascending triangle or flag pattern, both of which echo a bullish ‘flavour’.
Underpinning current support and the aforementioned pattern structure is the relative strength index (RSI) shaking hands with support between 40.00 and 50.00. Note that within trending environments, the RSI tends to produce a ‘temporary’ oversold region between the said points, and by extension offers a clear form of indicator support.
A breakout to the upside has Quasimodo resistance to target at 97.45. Alternatively, 95.86 support giving way unlocks the door to a decision point from 94.96-95.26 and a trendline support, extended from the low 89.84.
Harmonic traders are likely to be draw, to the H1 chart, offering a well-defined harmonic Gartley formation with a potential reversal zone set between 95.75 and 95.81.
In addition to forming around daily support at 95.86, whipsawing beneath the 95.89 low (5th January) could stir enough bearish flow to fill harmonic bids within the PRZ and generate a reaction to the upside. Therefore, should a positive NFP number emerge, as forecasted, a spike into the aforesaid PRZ could come about before pursuing higher levels.