As it is accustomed, every first Friday of the month, the Non-Farm Payrolls (NFP) report shows the state of the American job market. It is the jobs-related data to watch for and crucial for the Fed and market participants for the simple reason that the employment, or job creation, is part of the Fed’s mandate.
Now that the Fed signaled its monetary policy shifting to Average Inflation Targeting (AIT), the employment component of its mandate falls in second place. In a way, it is only normal – until presently, the Fed had more success bringing employment close to the maximum level, while it failed consistently to bring inflation to the 2% target.
However employment or job creation remains at the core of each economy. There is no growth if no jobs exist or if people find it difficult to have a job. There is no price stability towards the desired target if people do not have a constant income stream and feel confident to spend. Hence, the Fed is right having a dual mandate – job creation and price stability go hand in hand.
What to Focus on Today’s NFP Release?
So far, the data we have on hand about August employment shows a mix picture. On the one hand, the ADP, or private payrolls, released two days ago, missed expectations by a mile. Instead of 1.2 million new jobs, it added around 400k. That is the ugly side of the ADP story. But if one chooses to look at the data with a positive attitude, this is the 4th consecutive month that the private sector ads jobs. In other words, the economic recovery is there, but only it lacks momentum a bit.
Initial jobless claims yesterday have beaten expectations – 881k on expected 955k and 1011k previously. Still, an awful number. When hundreds of thousands of people apply for unemployment benefits in a single week it is difficult to see the positive in such data. However, the data has come down from the millions to below one million. A shrinking or declining trend is visible – a small but encouraging sign that the recovery is on progress, albeit a very small one.
Like in any recession, and in this one even more accentuated, many of those who have lost their jobs will have no job to return to. Think of how many small businesses closed due to consumer postponing purchases. Think of how many restaurants or cafes closed due to a decline in revenue from the new safety measures were forced to apply. Hence, if pre-crisis a café hires 7 people, most likely will do just fine with the current business level with only half of that number. The other half must find some other place to work.
And in the meantime, apply for unemployment benefits. All in all, a mixed picture for the August NFP, with the focus on the unemployment rate and the number of permanent job losses.