Today we look at the latest economic data that has been released, which is the US Non-Farm payroll data for the month of February. The US Non-Farm payroll is data that shows employment statistics growth or decline in the construction, goods, and manufacturing sectors.
According to the US bureau of Statistics the US added 379,000 jobs in the month of February. To top it there was a revision to the January numbers from 49,000 to 200,000, an additional 159,000 jobs. What does this mean? A little background, the US economy is a consumption driven economy. This means that growth comes from spending by individuals. What drives individual spending? Spending is primarily a function of disposable income, (income that remains after paying fixed expenses and debt), and the level of interest rates.
Interest rates affect spending because they determine two things:
- if individuals can access loans cheaper or
- do they get enough compensation if they save. We will however deal with interest rates in the next blog post.
Disposable income is influenced or increases in an economy as more people get jobs as majority of people rely on employment as their main source of income (there are other sources of income). Therefore, with the increase or the added jobs in the US we expect increased consumption to kick in and help the US economy to recover. Why does that matter to anyone? Well, the US imports US$ 2 trillion from around the globe, with Asia getting the lion’s share of 45%, 25% from North America, 23% from Europe. If local US demand increases because more jobs have been created, there will be an increase in demand for the products they import. Consequently, the exporting economies also start benefiting and growing as they get inflows of dollars.
For Africa, as demand from the US increases, demand for raw materials from China and Europe also increases and US$ inflows also increase with time. This will lead to a bit of stability in the short run to their currencies. As a result of the improvement of the US economy, other currencies will also begin to strengthen, driven by an increase in exports.
I therefore foresee the following scenarios unfolding if the trend in US job increases continue:
- A short-term strengthening of the Dollar. This will lead to an increase in the prices of imports.
- Increase in commodity prices, especially Oil. This will cause inflationary pressures in oil importing countries, especially in the transport and electricity sector.
- Increase in risk appetite. This might see a short-term influx of money in emerging markets stocks, however an eye on US interest rates might dampen that. We will however look at this in the next blog.
In summary, this is what the US Non-Farm jobs data means to you who is not in the US.
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