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Payroll Employment

Lesson 2 of 6
Duration 5:00
Level Beginner
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The Payroll Employment lesson discusses where to find it, how to forecast it, how it’s influenced, and how it influences financial markets and the economy. Tracking the number of people on U.S. payrolls is important because it’s one of the most straightforward economic indicators available and it provides a powerful link to the economy’s productivity.

Study Notes:

Jobs Day is the most important day of the month on the economic calendar and is generally on the first Friday of each month. Payroll employment is released on Jobs Day and represents the total amount of individuals on company payrolls in the U.S. The payroll employment report provides details on total jobs by many industries. The eleven major industries are mining, construction, manufacturing, trade transportation and utilities, information, finance, professional and business services, education & health services, leisure and hospitality, other services and government.  Payroll employment is calculated at the U.S. Bureau of Labor Statistics or BLS by collecting data from roughly 144,000 randomly sampled businesses.  Data from businesses that don’t respond are estimated. The numbers are released within the Employment Situation press release during pre-market hours at 8:30am eastern time. Data for states are generally released a few weeks after the national data. The BLS measures labor market activity, working conditions, price changes, and productivity in the U.S. economy to support public and private decision making.

The published report reflects the total number of jobs which acts as a significant indicator of the economy’s productivity. In addition, the report helps to provide critical information concerning the pace of hiring. The jobs report also provides a large amount of additional data such as the unemployment rate, the labor force participation rate, average hourly earnings and more. Generally, market participants value the seasonally adjusted number of jobs added in the prior month the most. It’s the most valuable data point in the Jobs Report. The figure represented is straightforward and has a low chance of misinterpretation. It’s simple and useful, “how many jobs are there?”, “how many jobs did we add last month?”

Other data points in the Jobs Report also provide useful information. The unemployment rate is one of the oldest economic indicators available and is helpful when analyzing long-term trends. It provides information regarding how tight or loose the labor market is, or in other words, the relative ease or difficulty in finding employment. The labor force participation rate provides information regarding the percentage of the population that is currently in the workforce. A high participation rate is a welcome event, it means many people are in the labor force, thus helping firms grow and boosting national GDP. Average hourly earnings is useful when analyzing wage levels and inflationary pressures while weighing the potential benefits of stronger consumers against the potential challenges of higher expenses for businesses. Payroll employment alongside the other indicators in the Jobs Report provide critical information regarding the state of the labor market in the U.S. The global economy depends on the U.S. labor market’s outsized influence for continued economic growth. Financial markets also depend on a strong U.S. labor market; higher productivity and higher incomes support financial markets globally.

To forecast payroll employment, look at economic indicators such as the hours worked in the economy, since  businesses tend to cut hours before laying people off. Weekly unemployment claims determine if layoffs are rising. The Weekly Staffing Index from the American Staffing Association, details hiring levels at staffing companies. The monthly ADP employment report which leads the jobs report and the employment parts of the Purchasing Managers’ Index, provides a gauge as to how manufacturing employment is responding to order flows for high-cost durable goods. The business survey data from the National Federation of Independent Businesses provides information regarding hiring plans, businesses cutting hours, and other business concerns. In addition, watching consumer confidence and retail sales helps determine whether trends in business revenue are weakening, which may lead to layoffs.

The release of payroll employment information is often a major market moving event. Generally speaking, the market will drop more if the number of added jobs from the previous month is worse than expected, and it will rise if the numbers reported are better than expected. More employment means more economic activity, more productivity and an environment that is supportive of financial assets and global economic growth.

Payroll employment is one of the most useful, reliable, and straightforward economic indicators available. It is important to track the number of people on U.S. payrolls, as it provides a powerful link to the economy’s productivity.

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The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

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