The US economy ended 2016 with a nonfarm payroll number that was positive and extended a longer trend. At Nadex, you can do more than just nod at those numbers. You can trade the jobless claims and NFP numbers, as well as whether the Fed will raise interest rates again.
By Vikram Rangala
Thursday, January 5, 2017
The longest streak of continuous monthly job creation since 1939, the biggest increase in wages since 2009, and the longest streak of annual payroll gains above 2 million jobs since 1999: the US economy ended 2016 with some of the most positive numbers since the job destruction and 10% unemployment rate of the Great Recession. The December nonfarm payroll number reported by the US Bureau of Labor Statistics showed 156,000 nonfarm jobs created. This is down from the 204,000 rise in November and lower than the 175,000 forecast by a Bloomberg survey of economists.
Although it was lower than the average for the year, it was enough to keep the economy outpacing population growth. The overall unemployment rate rose from 4.6% to 4.7%. Unemployment remained at or below 5% for all of 2016. Perhaps most important for both wage-earners and the Federal Reserve, median household wages rose 2.9 percent from a year ago, the largest jump since the beginning of the current expansion in 2009.
The Fed has stated several times that it is looking for more robust wage growth as well as signs of faster inflation. Inflation and unemployment are specific parts of the Fed's mandate for monetary policy. It is supposed to influence interest rates and the money supply so that certain essentials in a consumer-driven economy keep happening. First, people should have jobs. And second, they should use their income from those jobs to buy things, thus keeping prices and business profits increasing steadily.
The Fed adjusts the rate so that inflation doesn't go up so high and fast that people have trouble affording things, as happened in the 70s and early 80s. It also doesn't want people to stop spending and make it hard for businesses to stay in business and continue hiring. That's where the third factor, wage growth, comes into the picture. It isn't explicitly a part of what the Fed is supposed to target. The Fed doesn't have an opinion on the minimum wage, for example.
But in practical terms, the FOMC members know that just being employed doesn't mean you have money to spend. You need to be earning enough to have a little extra after the basic bills are paid. What's more, people only start spending and stimulating the economy once they feel confident that the job they have just gotten isn't going to disappear in a few months. When workers feel confident that they are not only going to stay employed, but they can expect a raise in a year, that's when they start to do things like buy new cars, TVs, and homes.
That's why the Fed watches the weekly jobless claims and monthly nonfarm payroll numbers, as well as other statistics in the monthly employment situation report from the Labor Department. Everyone who watches the Fed watches those numbers as well. Traditionally, traders watched them only to try and predict what the stock or bond market might do after the release of one of these reports or after a Fed rate announcement.
But Nadex traders can do more than speculate on how various markets might react to the numbers. On Nadex, you can trade the numbers themselves. If you thought the economists' consensus estimate of 175,000 jobs in December was too high, you could have sold a binary option on the nonfarm payroll number.
Now the question for many analysts is whether the Fed will wait to see what the new administration doest before deciding to raise interest rates again. The release of the minutes from the last FOMC meeting, in which the committee raised rates, seemed to confirm this wait-and-see attitude. If you have an opinion on whether the Fed will hold the current base Fed Funds rate at 0.5% or raise it a quarter or possibly even half a percent in February, you can trade that opinion with a Nadex Fed Funds binary option.
You can still speculate on what the Dow might do after the next FOMC announcement or how the euro might react. Nadex lets you trade multiple asset classes at once. Consider putting on a trade based on the economic number itself, as well as trading the reaction of the markets to the number. If you enjoy studying the economy, this is a way to trade the heart of the economy directly.
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