Non-farm payroll: what it is and why it’s important

Non Farm Payrolls (NFP) is an economic indicator that tracks changes in the number of workers in the United States, excluding public administration employees, non-profit organisations, private households and agricultural workers.

The non-farm payroll data are included in a monthly employment report published by the US Bureau of Labor Statistics (BLS) through the Current Employment Statistics (CES) program. The report is typically released on the first Friday of each month at 8:30 am Eastern Time.


NFP is part of the “Employment Situation” report, which consists of two surveys. The first is the Household Survey (which includes 60,000 households) and the second is the Current Employment Statistics Survey (which includes data from 697,000 work sites). The latter contains the non-farm payrolls, unemployment rate, average hourly earnings, and average weekly hours.

NFPs have a significant impact on various financial markets, including forex, bonds, and stocks. It is an essential tool for policymakers and economists to assess the current state of the economy and make predictions about future economic activity.

Interpretation of non-farm payrolls

Positive Non-Farm Payrolls (NFP) data indicates job growth, with more companies hiring new employees. As these individuals now have a source of income, they are likely to increase their spending, leading to upward movements for the US dollar (USD). Conversely, a decline in employment has negative effects on the USD.

It's worth noting that sustained increases in the NFP indicator can raise expectations of higher inflation. Consequently, the Federal Reserve may respond by increasing interest rates in an attempt to moderate the pace of job creation.

What does the NFP exclude?

The NFP excludes data from the following categories of people:

  • Public administration employees
  • Private household employees
  • Employees of non-profit organisations providing assistance
  • Agricultural employees

In addition to the total employment figure, the monthly NFP report also includes estimates of the average weekly hours worked and the average hourly earnings for all non-agricultural workers.

The Establishment Survey, which is the source of the NFP data, provides further details such as:

  • Breakdown of non-agricultural payroll additions by industry, including durable goods, non-durable goods, and services.
  • Specifics regarding hours worked.
  • Information on the average income per hour worked.

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Summary: non-farm payroll report

In conclusion, the Non-Farm Payrolls (NFP) report is a crucial economic indicator that provides insights into the US labour market. It offers valuable information about employment trends, job creation, and wage growth. Traders, investors, and policymakers closely monitor NFP data as it can significantly impact financial markets and influence decision-making.

FAQ

What is the significance of the Non-Farm Payrolls (NFP) report?

The NFP report is highly significant as it offers a comprehensive view of the US labour market, reflecting job creation, employment trends, and wage growth. It provides valuable insights into the overall health of the economy and helps shape market expectations, influencing currency valuations, interest rate decisions, and investment strategies.

How does the NFP report impact financial markets?

Positive NFP data indicating job growth and increased hiring tends to strengthen the US dollar and may lead to upward movements in bond and stock markets. Conversely, negative NFP data suggesting a decline in employment can weaken the US dollar and trigger downward movements in financial markets.

What role does the NFP report play in economic policy-making?

Government policymakers and central banks, such as the Federal Reserve, closely analyse NFP data to assess the health of the labour market and the broader economy. The insights gained from the NFP report help shape monetary policy decisions, including interest rate adjustments, which aim to maintain price stability and support sustainable economic growth.

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