As an economic indicator, the Unemployment Rate is viewed as unreliable for interpreting the current market conditions. Because it lags the business cycle, investors and traders are reluctant to use it; they fear the economy has already moved in the meantime.
Indeed, the indicator lags by six months or so, according to the estimates. However, it offers priceless information about an economy, and a trend in job creation is often more important than any other indicator – leading or coincident.
Last Friday, the NFP report revealed that the US economy added 379k new jobs – a staggering number by all counts. Moreover, positive revisions to previous releases made the number even more impressive.
Yet, there is still a long way to go to full recovery.
Optimism Builds Up in America After the Latest NFP Report
Despite the positive NFP report, some voices called for caution. More precisely, critics argued that, while good news, the data may be just temporary and that there is a long road to full employment and economic recovery.
They are right. According to some studies, for the jobs market to catch the pre-pandemic trend in 2021, it will need to create 1.5 million jobs a month. Or 758k/month to meet the threshold in 2022. Finally, 379k/month, and there will still not be enough jobs to catch the trend by 2024.
However, these are just inputs based on what we knew before the COVID-19 pandemic. What follows is a different story, as the economy will react differently due to the various forms of economic stimulus deployed in response to the health crisis.
Also, the journey of a thousand steps begins with the first one. While timid, the jobs market advance builds up momentum month after month. Critics should be reminded that the pandemic brought an unprecedented crisis, something never seen in the world in modern times. Therefore, the job numbers, while well below the level to catch the pre-pandemic trend, are impressive simply by what they suggest.
Optimism is the first thing that comes to mind. America sees the light at the end of the tunnel closer by the day – and the markets will not hesitate to reflect it.
The US dollar had a mixed reaction to the report. It rose initially, only to give back the gains as the stock market hesitated on the news. I guess the week ahead is decisive, considering the fact that the Senate approved yet another round of fiscal stimulus over the weekend.