Meaning of Non-Farm Payroll

The report primarily discloses the increase or decrease in jobs in the United States compared to the previous month. Then other data like the momentum of unemployment rate in the country. The data does not consider farm workers, private household employees, certain government employees, and non-profit organizationNon-profit OrganizationA not-for-profit organization refers to a legal entity that isn’t created to generate profits or revenue for its owners but aims at social, educational, religious or public welfare and service. Such an organization is tax-exempted and run through donations or any other income it makes.read more employees.

Key Takeaways

  • Non-farm payroll in the US is a regular monthly report presenting information about the labor force, excluding farmers and a few other workers in the US.NFP is a vital indicator of the performance of the American economy and can influence global confidence in the US as the strongest economy.NFP information is released on the first Friday of every month as a part of the Employment Situation Report.The information in the NFP report will be helpful to investors in optimizing trading in FOREX, bonds markets, the stock exchange, and so on.

Explanation of Non-Farm Payroll

The non-farm payroll indicates whether the employment rise or falls compared to the previous report in quantitative terms. It also denotes the current value of employment and percentage change in the unemployment rate in the country. In addition, the report shows the segregation of sectors where job gain and loss occurred. For instance, employment in the manufacturing and construction sectors increased simultaneously, and there was a decline in the retail industry.

In a nutshell, the NFP is one of the many ways of assessing the health of the US economy. The prompt monthly reporting is helpful to know about the current economic scenario and, when viewed on a temporal basis, i.e., comparing how the various aspects of NFP have changed for the past few months to make forecasts.

 When the NFP report becomes less vibrant over a couple of consecutive months, it could indicate an economy slowing down. Internationally, this could lead to various ramifications, including betting against the dollar, thus lowering its value, downgrading the credibility of the country’s debt or companies in the US, and a tool to check the effect of policies put in place bolster the economy.

Analyzing Non-Farm Payroll Report

The report’s statistics are based on two separate monthly surveys, Household Survey Data and Establishment Survey Data. The household survey determines labor force participation, whereas the establishment survey determines the industry’s nonfarm employment, durations, and wages. 

The household survey data presents the total unemployment figures and reveals the rates based on demographics like age and ethnicity. For instance, the data contain the unemployment rates for Whites, Blacks, and Hispanics. It also includes the number of permanent job losers, persons on temporary layoff, long-term unemployed, labor force participation rateLabor Force Participation RateThe participation rate refers to the total number of people or individuals who are currently employed or searching for a job. read more, the employment-population ratio, persons employed part-time for economic reasons, persons not in the labor force who currently want a job, and discouraged workers. 

Consider the following data of unemployment rate in percentage in the United States.

  • December 2019: 3.6February 2020: 3.5April 2020: 14.8November 2021: 4.2

In November, unemployed persons fell by 542,000, and the unemployment rate dropped to 4.2 from 4.6 in October 2021. Both are down from their peaks at the end of the February-April 2020 recession. However, they maintain a level higher compared to the pre-Covid period. For example, in February 2020, it was 3.5%. In this way, NFP reports of recent periods help the data analysis process.

Establishment survey presents information regarding change in non-farm payroll employment and details of average job growth, average hourly earnings, the average workweek (hours) in different sectors, and job gains or losses in various sectors like professional and business services, administrative and waste services, management, technical consulting services, transportation and warehousing, couriers and messengers, construction, manufacturing, financial services, retail, leisure, and hospitality. 

The report also contains revised data, if any. For instance, if there is any revision for September NFP employment data based on the additional information received from businesses and government agencies since the last published estimates and the recalculation of seasonal factors, the report published in December can include the revised data in it.

Non-Farm Payroll Release Dates

The Bureau of Labor and Statistics releases the report or the payrollPayrollPayroll refers to the overall compensation payable by any organization to its employees on a certain date for a specific period of services they have provided in the entity. This total net pay comprises salary, wages, bonus, commission, deduction, perquisites, and other benefits.read more statistics as a subset of the Employment Situation Summary on the first Friday of each month at 8.30 am Eastern time. For example, the non-farm payroll date of 2021 November is Friday, 3rd December 2021. The report also mentions the following release schedule.

How to Trade on Non-Farm Payroll Report?

Each month when the NFP report is released, the investors will process the information since it indicates the country’s economic health. The release generally impacts the forex market, the bond market, and the stock marketStock MarketStock Market works on the basic principle of matching supply and demand through an auction process where investors are willing to pay a certain amount for an asset, and they are willing to sell off something they have at a specific price.read more. The extent of this influence is proportional to the nature and size of the content in the report. It can cause an increase in volatility and a widening of the spreadSpreadSpread is the price, interest rate, or yield differentials of stocks, bonds, futures contracts, options, and currency pairs of related quantities.read more.

Trading after the NFP release is not uncommon, but traders should be more cautious. This news release creates a favorable environment with sudden price movements for day tradersDay TradersThe day trader is an individual who trades in the financial markets daily to earn profits by exploiting the inefficiencies present in the market. The three types of traders are - individual traders, financial institution traders, scalpers and momentum traders.read more because it provides a near guarantee of a tradable move following the announcement. Typically, all types of markets destabilize for the first few moments after the information release as traders digest the information. It can be great for scalpers, but long-term traders would need to be careful to put in trade in any market at this point.

This has been a guide to Non-Farm Payroll and its Meaning. Here we discuss how to trade on non-farm payroll reports and their release date with a detailed explanation. You may also have a look at the following articles to learn more –

NFP is the collection of information describing the number of employed people in the United States. As the name indicates, NFP statistics exclude counting farm workers, private household workers, specific government workers, proprietors, and non-profit organization employees for preparing the monthly NFP report.

The Bureau of Labor Statistics of the United States releases the NFP report that details the employment situation in the United States for the specified month. They publish it on the first Friday of every month at 8.30 am Eastern time.

While excluding farm workers, private household workers, specific government workers, proprietors, and people employed in the non-profit organizations, NFP focuses on details of jobs from sectors like professional and business services, management and technical consulting services, transportation and warehousing, couriers, and messengers, construction, manufacturing, financial services, retail, leisure, and hospitality.

  • Global RecessionUnemployment Rate FormulaCyclical Unemployment