Why trading jobs reports yields mixed results

By Paul Reid

15 August 2023

When it comes to fundamental influences that can shake up technical forecasts, few reports command as much attention as the jobs report, especially in the United States. This comprehensive release, delivered by the Bureau of Labor Statistics (BLS), provides insights into the health of the labor market, unemployment rates, wage growth, and overall employment trends. 

Historically, these reports have had a significant impact on the US stock market and dollar, but they don’t always play out as you might expect.

Nonfarm Payrolls: a mixed signal

Non-farm Payroll releases commonly shift the markets, at least in the short term. The assumption is that strong job growth, as indicated by a positive nonfarm payroll figure, will drive optimism in the stock market and strengthen the US dollar. But, there are exceptions to this rule of sorts.

Sometimes, the stock market may have already priced in expectations for a strong jobs report. In such cases, a report that then merely meets expectations might not lead to significant price movements, no matter how strong. Additionally, overreacting to a single month's data without considering broader economic trends might result in short-term market reaction that isn’t sustainable over time. This has been very common in recent years, creating brief volatility that causes many traders to stop out.

The jobs report is not an economic mechanism, but rather a sentiment trigger, and sentiment can change with the wind. If you’re forecasting based on the jobs report, consider jumping in and out of the markets on the same day.

Unemployment Rate: a deeper look

A falling unemployment rate often indicates a healthier labor market and is generally associated with a positive impact on both the stock market and USD. However, there are situations where this correlation may not hold.

Declining unemployment rates might also be driven by shrinking labor force participation rates. This could mean that some people have given up on finding jobs and are no longer counted as unemployed. In such cases, the stock market could interpret the unemployment rate drop as a sign of discouraged workers, which isn’t a positive indicator for economic strength.

Moreover, the unemployment rate doesn't reveal the quality of jobs being created. An increase in part-time or low-wage jobs doesn’t translate into a strong economy, which in turn won’t sway the stock market in a bullish direction. Smart investors are looking for signs of meaningful wage growth and stable job opportunities.

Forecasting based on the Unemployment Rate release will yield mixed results and should not be considered a reliable indicator for US stock trading or other USD-related instruments.

Average Hourly Earnings: the wage puzzle

Wage growth influences the overall health of the economy and consumers’ purchasing power, potentially boosting the stock market. However, the relationship between wage growth and the stock market isn't always straightforward.

If wage growth outpaces productivity gains and starts to fuel concerns about inflation, the stock market might react negatively. This is because higher inflation generally leads to higher interest rates, which affect corporate borrowing costs and impact stock prices.

The stock market might be wary of such cost pressures, especially if they're not accompanied by corresponding revenue growth. The Average Hourly Earnings report is more of a lagging indicator that may offer insights into the next quarter. Daytrading with such a report at face value isn’t wise and can yield limited success.

Underemployment: hidden implications

The underemployment rate, which includes people working part-time but desiring full-time work, can reveal the extent to which individuals are underusing their skills and the labor market's inability to meet their preferences. However, the immediate impact of changes in the underemployment rate on the stock market and currency value can be less direct.

Changes in the underemployment rate might be seen as part of broader labor market trends. If other indicators, such as nonfarm payrolls or wage growth are robust, the stock market and currency value might focus on those more heavily.

Moreover, if the underemployment rate remains persistently high due to structural issues, such as a mismatch between the skills of job seekers and available positions, it might not elicit a significant market reaction at all. Addressing such structural issues would require policy intervention.

If you have long-term stock positions, setting Take Profit and Stop Loss based on Underemployent data can be considered, but opening or closing orders based on these releases is not recommended.


While jobs reports are useful for understanding the health of the US labor market and its potential impact on the economy, their direct influence on the stock market and currency value can be unpredictable. 

A variety of factors, including market expectations, global economic conditions, the quality of jobs being created, and inflation concerns can shape the market's reaction to these reports.

Do jobs reports reliably forecast a nation's economy? No. Do jobs reports influence the markets? Yes. Trading on data expectations can produce short-lived volatility at the time of the report’s release. 

Exness’ Stop Out Protection feature reduces the risk of stop outs caused by extreme volatility, but consider getting in, getting out — and setting Stop Loss every time. Be modest with your leverage and expectations, and stay glued to the chart for the hour of the release.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.


Paul Reid
Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.

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