ADP reported that private sector employment rose by 330,000 jobs in July, well below estimates of around 700,000. The consensus estimate for Friday’s report is 900,000 new jobs. These expectations coincide with recent comments from the Federal Reserve that the labor market still has some ground to offset the recovery from the Covid-19 losses.
Achieving full employment levels will be key to any Fed tapering decision and will be closely watched by all parties involved. The participation rate is around 61 . 6%, well below pre-pandemic levels. A difference of a few percentage points equals millions of people looking for work. Although the unemployment rate is falling, there are still millions of unemployed. Part of the decline in participation is attributed to those no longer looking for work due to early retirement due to the pandemic. These people will cause a permanent drop in the participation rate as the workforce shrinks, but not enough to explain a 2-3% drop in the participation rate. For employment levels to reach the Federal Reserve’s desired numbers, many of those employees who are no longer looking for work will have to change their minds.
Year-over-year hourly earnings continue to rise, as one would expect with general inflation in the economy. However, as economists have shown in recent years, prices can continue to outpace wage growth. Current inflation conditions are not beyond the Fed’s expectations and indeed help strengthen its case for rate hikes from 2023 onwards, assuming inflation stays at those levels and does not rise. not drastically.
In the event that inflation continues to rise, measures can be taken in advance to control the money supply and try to reduce inflation so that it does not become excessive. This is one of the main concerns of the market and it can be called ” Temper tantrum “Essentially, the market would be turned upside down if easy money conditions with low interest rates changed quickly or unexpectedly. This would change banking requirements and lending practices and lead to asset appreciation, which would cause likely a market sell-off. The Fed will try to avoid this scenario as best it can, using various terms in their minutes and meetings to signal that they are aware of the conditions and are working to help The Markets Today’s bull market can handle soaring inflation and changing circumstances, but only when anticipated and planned for Markets don’t like surprises.
Based on the ADP figure well below expectations, a surprisingly low employment figure could be expected on Friday. This would have market implications and could lead to volatile conditions in either direction. Your vital traders approach these economic releases with a plan in place if they are trading in volatile markets.
News events such as jobs reports and Federal Reserve announcements can create volatility in the market and traders should prepare accordingly to protect risk capital. For up-to-date information on futures expirations, news announcements, and more, visit the NinjaTrader Trading Desk Calendar.