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How the Employment Report Affects Financial Markets

The U.S. Department of Labor’s employment report is the first piece of major economic data released each month. The report is released on the first Friday of every month. Bond, stock index, and currency futures are keyed upon the release of the data at 8:30 a.m. eastern time.

The release of the employment data usually is followed by frenzied trading that can last from a few minutes to an entire day, depending on what the data shows and what the market was expecting. The report is so important that it can set the trend for overall trading in the entire arena of the financial markets for several weeks after its release.

When consecutive reports show that a dominant trend is in place, the trend of the overall market tends to remain in the same direction for extended periods of time. The reversal of such a dominant trend can often be interpreted as a signal that bonds, stock indexes, and currencies are going to change course.

The employment report is most important when the economy is shifting gears, similar to the way it did after the events of September 11, 2001, and during the 2004 presidential election. During the election, the markets not only bet on the economic consequences of the report, but they also bet on how the number of new jobs would affect the outcome of the election.

Traders use the employment report as one of several important clues to predict the future of interest rates.

For trading purposes, the major components of the employment report are

  • The number of new jobs created: This number tends to predict which way the strength of the economy is headed. Large numbers of new jobs usually mean that the economy is growing. When the number of new jobs begins to fall, it’s usually a sign that the economy is slowing.

  • The unemployment rate: The rate of unemployment is more difficult to interpret, but the trend in the rate is more important than the actual monthly number. A workforce that is considered to be fully employed usually is a sign that interest rates are going to rise, so the markets begin to factor that into the equation.

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