Benchmark revisions to non-farm payrolls, FOMC minutes to drive USD action

Non-farm payrolls (NFP) are part of the US Bureau of Labor Statistics’ monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the agricultural industry.

The nonfarm payrolls figure can influence the Federal Reserve’s decisions, providing a measure of how successfully the Fed is meeting its mandate to promote full employment and 2 percent inflation. A relatively high NFP figure means more people are employed, earning more money and therefore likely spending more. A relatively low Non-Farm Payrolls result, on the one hand, could mean people are struggling to find work. Typically, the Fed will raise interest rates to combat high inflation fueled by low unemployment and cut them to stimulate a stagnant labor market.

Non-farm payrolls generally have a positive correlation with the US dollar. This means that when wage numbers come out higher than expected, the USD tends to rise and vice versa when they are lower. NPFs influence the US dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be tighter in its monetary policy, supporting the USD.

Non-farm payrolls are generally negatively correlated with the price of gold. This means that a higher than expected wage figure will have a depressing effect on the price of gold and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities, gold is priced in US dollars. If the USD gains in value, therefore, fewer dollars are needed to buy an ounce of gold. Also, higher interest rates (usually helped higher NFPs) also diminish the attractiveness of gold as an investment compared to staying in cash, where the money will at least earn interest.

Nonfarm payrolls are only one component of a larger jobs report and can be overshadowed by the other components. Sometimes when NFP comes in higher than forecast but average weekly earnings are lower than expected, the market has ignored the potentially inflationary effect of the headline and interpreted the earnings decline as deflationary. The Participation Rate and Average Weekly Hours components can also influence market reaction, but only in rare cases such as the Great Recession or the Global Financial Crisis.