Clarification of the Terminology
The employment situation is a set of labor market indicators. The
unemployment rate measures the number of unemployed workers as a percentage of
the whole labor force. The total labor force is defined as the total
number of paid employees working part-time or full-time in the nation's
business and governmental establishments, excluding farm related labor. The average workweek reflects the number of
hours worked in the nonfarm sector. Average hourly earnings reveal the
basic hourly rate for major industries as indicated in nonfarm payrolls.
(Bureau of Labor Statistics, U.S. Department of Labor)
Significance Of This Economic Report To The Trader or Investor
In past years the anticipated economic report has been a major factor
in swaying the direction of the market. The information provided
in the economic report is viewed to be invaluable to the day-trader, the
investor and Wall Street, in general. It has tremendous impact on
Wall Street and has caused dramatic swings in price and volume.
Many professional investors and traders focus a huge amount of energy in
dissecting the economic report in an effort to understand its underlying
meaning. Proper interpretation of this report and subsequently,
maintaining a rebalanced portfolio could mean the difference a
successful trading year and a losing effort. Many investors
strategically align their portfolios by moving their trades to sectors
of investment opportunities based on the bias of the report.
The employment data give the most comprehensive report on how many
people are looking for jobs, how many have them, what they're getting
paid and how many hours they are working. These numbers are the best way
to gauge the current state as well as the future direction of the
economy. Nonfarm payrolls are categorized by sectors. This sector data
can go a long way in helping investors determine in which economic
sectors they intend to invest.
The employment statistics also provide insight on wage trends, and wage
inflation is high on the list of enemies for the Federal Reserve. Fed
officials constantly monitor this data watching for even the smallest
signs of potential inflationary pressures, even when economic conditions
are soggy. If inflation is under control, it is easier for the Fed to
maintain a more accommodative monetary policy. If inflation is a
problem, the Fed is limited in providing economic stimulus.
By tracking the jobs data, investors can sense the degree of tightness
in the job market. If wage inflation threatens, it's a good bet that
interest rates will rise; bond and stock prices will fall. No doubt that
the only investors in a good mood will be the ones who watched the
employment report and adjusted their portfolios to anticipate these
events. In contrast, when job growth is slow or negative, then interest
rates are likely to decline - boosting up bond and stock prices in the
process.