One of the most important roles of any government is to create jobs for its citizens. It is these jobs that go ahead to fund the government using the taxes. When there are no jobs in a country, the economy cannot grow. This tends to lead to instability. A good example for this is in Iran where many young people have graduated from university but have been unable to land jobs. They have resulted to street demonstrations.
In the United States, the economy is usually the most important topic in elections. In the 2016 campaign, Donald Trump talked passionately about the jobs the country had lost because of trade deals like NAFTA. He visited cities like Detroit and talked to the people about how he would return those industries as president. On election day, those people rewarded him by voting for him.
Every month, the labour department releases the jobs for the previous month. Traders monitor these numbers because they show whether the country is creating more jobs and whether the wages are growing. They also interpret the data on the basis of inflation. A common principle in finance is the Philips Curve. The principle states that inflation tends to move up as the unemployment rate falls. On the other hand, inflation is a closely-watched number by the central bank, which increases or reduces interest rates to contain it.
Today, the labour department will release the official employment numbers for August. Traders expect these numbers to show that the economy created 191K jobs. This will be higher than the jobs created in July. In total, this year, the US economy has created more than 1,521, 000. At the same time last year, the economy had created 1,496,000 jobs, which is an improvement.
Traders expect the unemployment rate to drop to 3.8%. This will be the lowest rate since May this year. The average work hours are expected to remain at 34.5 while the wage growth is expected to remain at 0.30%.
These numbers will come a day after ADP revealed that private sector payrolls increased by 163K in August. This was lower than the expected 188K. However, in the past, the ADP number has differed significantly with the official numbers. Yesterday, we learned that the number of people filing for unemployment claims was reducing. The initial jobless claims declined to 203K from last week’s 214K. The continuing jobless claims declined to 1,707K jobs, which was lower than the expected 1,710K jobs. These numbers have led to a reduction to the number of people who receive food stamps.
Strong jobs numbers will continue to make the case for a December rate hike. The September hike has already been baked in. This will result to a continuation to the dollar strength. On the other hand, if the jobs numbers disappoint, they will lead to a dollar weakening. As shown below, this weakening started in mid-August and if the numbers disappoint, they will lead to a continued decline.
Meanwhile, we will also receive jobs numbers from Canada. Traders expect the unemployment to move from 5.8% to 5.9% as the participation rate remain at 65.4%. They expect the employment numbers to change by 5.1K. Good employment numbers will lead to increased chances for a rate hike in October.