Interpreting the July 2020 NFP Report

The NFP July 2020 report confirmed what President Trump tweeted last week – an improving labor market. However, while the headlines show data beating expectations, the details reveal a contrasting picture. 

Since the coronavirus pandemic reached Western countries in February this year, the labor market changed completely. All countries tried to protect their businesses and workers by offering unprecedented governmental support. However, at one point in time, the real impact of the COVID-19 crisis must appear in the data. Such a time was this last Friday when the NFP report came out.

Strong Bounce, But the Overall Picture Looks Weak

The July NFP report showed a strong bounce in the number of jobs, with the unemployment rate declining significantly. However, there is a long road to full recovery, and every month that passes reveals how unstable the situation is.

Since February 2020, the people affected the most by the coronavirus crisis were the ones earning lower-wages. Almost 30% of all jobs lost belong to this category, and the new jobs added in July recovered only 3% of that number. Nevertheless, the good news is that the economy reopens, and businesses started to add back their workforce.

The report was closely watched by market participants due to the conflicting news prior to its release. The employment component on the two ISM reports for the month of July pointed to a weak NFP number, but President Trump suggested that the NFP report will beat expectations. As such, the USD traded with a mixed tone on the news released prior to Friday’s report.

What is interesting is that the information, a higher-wage industry not directly impacted by the pandemic, is now the third most impacted industry sector. Also, while temporary layoff unemployment shrinks, the non-temporary jobs lost continue to increase.

While showing a mixed picture, some encouraging signs did exist in the NFP report. For example, core unemployment is heading down. Viewed as one of the most important metrics to interpret the NFP report, the core unemployment discounts temporary workers and focuses on permanent job loss. It fell for the first time since the pandemic started, an encouraging sign that sent the USD higher across the board.

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