Market Participants Confused By Nonfarm Payrolls Report

 | Oct 11, 2021 04:13AM ET

The Fed has one more reason to tighten monetary policy as the unemployment rate in the United States fell to 4.8% from 5.2%.

Notably, analysts had predicted the indicator to decline only to 5.1%. So, the actual reading significantly exceeded expectations and surprised market participants.

Naturally, the US dollar was projected to rise considerably amid upbeat data. However, it did not happen. It continued to stand still.

Apart from the unemployment figures, traders were also puzzled by the number of new jobs created in the nonagricultural sector. The economy added only 194,000 versus the projected reading of 475,000.

This is why the unemployment rate is unlikely to fall significantly soon due to a slight increase in new jobs. It may also limit further strengthening of the US dollar.

In addition, there is a likelihood of a rise in the unemployment rate. To maintain more or less the same unemployment level, the US needs to create from 200 to 250,000 new jobs every month.

However, now, the unemployment rate is even below the Fed's target level of 5.0%. Its further decline threatens to overheat the labor market, which may trigger a sharp decline in investment, bankruptcy of companies, and mass layoffs.

If the unemployment rate is too low, there is a shortage of workers in the labor market. Thus, companies are forced to raise wages, which may adversely affect their profit.

In this case, firms refrain from making investments in the development or expansion as their profit is unlikely to grow. The economy should add a moderate number of new jobs every month, bringing down the unemployment rate.

Yet, the most important thing is that the Fed is highly likely to start tapering the quantitative easing program following this data. In the foreseeable future, the US dollar will inevitably resume its upward movement.