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Net the Employment Report Properly

A US payrolls report shows a headline gain of 150,000 jobs, against a forecast of 180,000. The two prior months are revised: the earlier one down by 60,000 and the more recent one down by 40,000. Wage growth comes in at 0.4 percent month on month, versus a forecast of 0.3.

Compute the net employment story. Headline versus forecast: minus 30,000. Revisions: minus 100,000 in total. Net effect on the level of employment compared with what was known before the release: 150,000 minus 100,000, which is 50,000 jobs added in net terms.

So the headline looks mildly weak, and the underlying picture is much weaker, since two months of earlier strength vanished.

Now the wage figure. Wage growth of 0.4 percent is above forecast by 0.1, which matters for inflation. The mix is employment weaker, wages stronger. The market must decide which the Federal Reserve will weigh more.

The likely reaction path: an initial move on the headline, a reversal or confusion as the revisions and wages are digested, and a settling after 15 to 30 minutes.

Traders who only read the headline often trade the first move and get whipsawed.

The disciplined approach is to compute net employment, note the wage surprise, and check how interest rate expectations changed over the first half hour, using futures or yields. Then ask whether the currency move matches.

Exercise: for the next payrolls report, compute headline, revisions, and net, before looking at price.

Netting the revisions is a step many skip. The wage number often matters more for rate expectations. In this case, weaker jobs but stronger wages give mixed signals, which often leads to choppy price action after the release.

The net calculation is a useful way to read the report. A headline of 150,000 against a forecast of 180,000 looks like a mild miss. But downward revisions of 100,000 to the two prior months mean the economy added only 50,000 more jobs than was previously believed. That's a much weaker picture. Markets do react to revisions, though sometimes with a delay as traders digest the full release. Calculating the net figure in the first minute or two after the release helps understand whether the initial reaction to the headline is likely to hold or reverse.

Netting the revisions changed how I trade payrolls, though it took me a few bad Fridays to learn it. For a long time I only looked at the headline number, and I remember buying the dollar on a beat in the first thirty seconds, then watching it give back the whole move once the revision to the prior month hit the screens.

Now I keep a small note with three lines before the release: headline versus forecast, the revision total, and the wage figure. I fill it in during the first minute and place nothing until it is complete. When the revisions and the wages disagree, as in your example, I treat the first spike as noise, and the price action over the next quarter hour is usually choppy, as the replies above said.

My practical rule is to wait for the first five minute candle to close and then trade only a break of its high or low, with the stop on the other side. It costs me part of the move but has saved me from most of the whipsaws.

The wage figure adds a complication. Weaker employment suggests the Federal Reserve might ease sooner, which would weigh on the dollar. Stronger wage growth suggests inflation pressure, which would support the dollar by making the Fed more cautious. The two signals point in opposite directions, and the market's reaction depends on which one it considers more important at that moment. When inflation is the main concern, wages may dominate. When growth is the concern, employment may dominate. Knowing the current market focus before the release helps anticipate the likely reaction.

Checking interest rate expectations through futures or two year yields is the best way to see how the market interpreted the report. If two year yields fall after the release, the market is reading it as dovish, regardless of the initial currency move. If they rise, the wage figure is winning. The currency often follows yields within the first half hour. For traders in WAT, US payrolls are released at 14:30 WAT now that both the US and UK are on winter time, which gives a clear window to watch the reaction before the London close.

The point about traders getting whipsawed by the headline is important. The first move after payrolls is often sharp and can reverse within minutes, as algorithms trade the headline before humans digest the full report. Spreads widen significantly at the moment of release, and slippage on stop orders can be large. Waiting 15 to 30 minutes, as the post suggests, often gives a clearer picture and better execution. Has anyone here calculated the net employment figure in real time during a release? I'd be interested in whether it helped you anticipate the second move after the initial spike.