America’s jobs-market report was once the world’s most important data release. Not anymore
BY 9.30PM ON the first Friday of the month, the bars in Marunouchi, Tokyo’s financial district, used to empty out as foreign-exchange traders returned to their desks. London’s investment bankers, back from lunch, would be sharp and alert, helped by a rare early night. All awaited the world’s most important data release: that of America’s jobs-market report.
The release—which includes figures on non-farm employment, the unemployment rate and wages—often generated sizeable market moves. On average, five-year Treasury yields moved by 0.17 percentage points on the day of the report’s release in 2004. The four biggest daily moves that year occurred after a release. Since then, though, market reaction has cooled. In 2019 yields barely budged, moving on average by less than 0.04 percentage points on publication of the report.
Before the financial crisis jobs data were thought to give a good signal about the likely actions of the Federal Reserve, which is tasked with ensuring maximum employment and stable inflation. The more people in jobs, the thinking was, the closer America got to full employment. A tighter labour market would push up wages and consumer prices. That made it more likely that the Fed would raise interest rates, making dollar assets more attractive.
The reason for the subsequent lack of interest is that falling unemployment is no longer a good guide to the Fed’s actions. Inflation has been unusually quiescent. The unemployment rate has fallen from 9% in 2011 to 3.5%, the lowest rate in 50 years. If the usual Phillips curve relationship held, a rise in inflation would have followed. But in fact it has fallen: personal-consumption expenditure inflation, the Fed’s preferred measure, has slipped from 2% to 1.6%.
As markets have become used to seeing strong payrolls without any signs of inflationary pressure, they no longer expect interest-rate rises to follow. Traders still pay attention to the wage figures in the report. In February 2018 a large pickup in average hourly earnings led to a spike in bond yields; the fall in the price of Treasuries was matched by a stockmarket selloff. But since then pay growth has lost momentum, even as unemployment has continued to fall.
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