Non-Farm Payroll – Why is Important

by Mar 23, 2022Forex Trading for Beginners

Non-Farm Payroll is a monthly report that consists of the number of workers in the U.S. excluding farm workers, government workers, private households, proprietors and non-profit employees.

BLS Non-Farm Payroll

BLS or Bureau of Labor Statistics publishes non-farm payroll every month on the first Friday at 08:30a.m. EST.

The BLS NFP link is publicly available where you can read all details about the last NFP released.

Importance of NFP

NFP data is important for beginners in Forex trading and experienced traders because it shows the current health of the U.S. economy every month based on the data from the previous month. The NFP data is published by the BLS or Bureau of Labor Statistics which is the government department for labor.

NFP data is important for other departments and the FED, central bank, for decisions about monetary policy that affects interest rates and inflation.

If the NFP data is bad, certain actors will start changing monetary policy to help the labor market become more competitive and to increase the well being of their citizens.

Why is it Called Non-Farm?

NFP is called non-farm because it does not include farm workers, private households and government workers and non-profit organisations but includes:

  • goods companies
  • manufacturing companies
  • construction companies

What is the Meaning of Non-Farm?

It means that Non-farm employees are included and farm workers are not included. The reason why farm workers are not included is because the agricultural industry is complicated where workers can be seasonal workers.

When you have seasonal workers then on the peak of the season you will have a large number of workers and when the season is over the number of farm workers drops down.

So, you can imagine how that number would fluctuate and if you include that number in the NFP report you will have unreliable data about employment. With unreliable data about employment other institutions like FED could not plan monetary policy accordingly.

What is Non-Farm Business?

Non-farm business is:

  • Labor Productivity (Output per Hour) for All Employed Persons
  • Real Hourly Compensation for All Employed Persons
  • Unit Labor Costs for All Employed Persons
  • Labor Share for All Employed Persons
    Hours Worked for All Employed Persons
  • Hourly Compensation for All Employed Persons
  • Average Weekly Hours Worked for All Employed Persons
  • Output per Job for All Employed Persons
  • Output for All Employed Persons
    Implicit Price Deflator for All Employed Persons

For more information visit Fred economic data website.

What is Private Non-Farm Payroll?

Private Non-Farm Payroll is the change of the payrolls in business excluding government, private household and nonprofit organizations.

Here you can see:

  • Nonfarm Private Financial Activities Payroll Employment
  • Nonfarm Private Goods – Producing Payroll Employment
  • Nonfarm Private Payroll Employment
  • Nonfarm Private Professional and Business Payroll Employment
  • Nonfarm Private Service – Providing Payroll Employment
  • Nonfarm Private Trade, Transportation, and Utilities Payroll Employment

Non-Farm Payroll Chart

Non-farm payroll chart shows you current numbers of employment change from this month to a year back.

On each column you can see the number that shows your last change in the NFP report. You can easily see how the NFP data is changing and what is the trend.

Current NFP chart shows that the U.S. labor market is recovering from a few months of decline.

What is Non-Farm Employment Change?

Non-farm employment change is the number of employees that is increasing or declining on a monthly basis provided in NFP release.

The numbers are usually in the thousands which indicates how many employees have started to work.

NFP March 2022

The number can be negative like in 2020 when the Covid virus pandemic started.

NFP April 2020

What is the Non-Farm Payrolls Report

The Non-farm payroll report is important economic indicator that shows the total number of paid workers in U.S., excluding:

  • farm employees
  • government employees
  • private household employees
  • employees of nonprofit organizations

Non-farm payrolls report is released on the first Friday each month at 08:30 a.m. EST or 12:30 p.m. GMT time.

The report gives insight about job growth in the United States. If the number is greater than previous month and greater than expectation then the impact will be positive for USD currency pairs.

Why is the Non-Farm Payroll Report Important

Non-farm payroll report is important because of data of U.S. job growth that has a great impact on the U.S. currency.

Consequently the price has an impact on other currencies in the world because USD is a reserve currency. And when U.S. dollar strength is declining or gaining strength it will have an impact on the whole world.

Check the chart where you have EUR/USD currency pair price change when the NFP report has been released with bad numbers for USD.

Actual
199K
Forecast
426K
Previous
249K

We can see the actual numbers of 199K are not good because the forecast was saying the numbers could be higher around 426K. Because the actual data is bad it is red colored.

NFT release 7.1.2022

And here is the chart that shows the moment when the NFP report is released.

The price of EUR/USD currency is rising which means EUR currency is gaining strength against USD. USD is losing strength because of bad job growth for the past month.

Because the difference between forecast 426K and actual 199K is large

426K – 199K = 227K

227K NFP report difference was enough important to trigger price change with large candles.

If the EUR economy gets good news then this move in price will be even greater.

When you use same analogy on other currencies that are connected with USD then you would get the same result.

So the Non-farm payroll report is important to many traders in the world because it impacts on the Forex market and brings the volatilty to the markets.

NFT release market reaction

What Do We Need to Look at in the NFP Report?

Main thing to watch in the NFP report is the number of non-farm employment rising compared to the previous period.

Here are all data that you need to look in the NFP report:

  • unemployment rate
  • average hourly earnings
  • specified sector increase or decrease

For you as a Forex trader it is important to see the unemployment difference because the numbers will have the highest impact on the price on the Forex market.

Analyzing the Non-Farm Report Numbers

Here you can check BLS NFP report where you can analyze all parts that are important inside non-farm payrolls.

When you open a non-farm report you will see many numbers. The report is not too large and is pretty easy to read. Nothing complicated that an average person that is not inside the financial sector could not understand.

Here is a small overview of what is analyzed in the non-farm report.

Unemployment rate

  • here you can read more data which sector has increased the number of employee or it decreased for some reason

Average hourly earnings

  • here you get what is hourly earning for all employees on private nonfarm payrolls, like $31.58
  • average hourly earnings increase over past 12 months
  • you also get manufacturing workweek for all employees, increase or decrease

How to Predict NFP?

To predict NFP check the NFP week and see which news are published and use the data released to see how much non-farm payrolls will be.

Here are the news that you can check to predicts NFP:

  • ADP payrolls or private payrolls
    • jobs created in the private sector that can give you a clue how the job market is doing for the past month
    • ADP shows you economic expectations how the payrolls will do. If you have ADP payrolls data more than expected then you can predict that NFP will do the same
  • ISM or Institute for Supply Management
    • Gives two PMI, manufacturing and non-manufacturing. Here you can take employment data to see how non-manufacturing is doing. If the data are bad then that will have effect on the NFP in general
  • Unemployment Claims
    • how many people have requested for unemployment benefits

Let’s go through each a little bit deeper so you understand what I mean and you use this information during NFP week to predict NFP results on Friday.

I will use non-farm payroll dates from March 2022 so you can see how the NFP data could be predicted.

Predict NFP week data release

Manufacturing PMI

Here you can see that on Tuesday manufacturing PMI was released and the result was positive.

The actual result was more than it was forecasted.

Here are the data:

Actual
58.6
Forecast
58.0
Previous
57.6
Predict NFP with ISM PMI

ADP Non-Farm Payrolls

Then on Wednesday you have ADP payrolls released where the results are again better than it was forecasted.

Here the actual results were not better than previous, but it beated the expectations of the economists which was great news.

Actual
475K
Forecast
378K
Previous
509K
Predict NFP with ADP

Unemployment Claims

And then on Thursday you have unemployment claims which means how many workers have requested for unemployment claims.

If that number is lower than before that means less workers are seeking benefits which also could mean that less workers have lost jobs. Which contributes to the overall U.S. job market.

Actual
215K
Forecast
223K
Previous
233K
Predict NFP with unemployment claims

When you combine all three results before NFP on Friday:

Manufacturing PMI – positive + ADP payrolls – positive + Unemployment claims – positive

You get:

Non-farm payrolls – positive

Non-Farm Payroll Effect on Markets

Non-farm payroll effect on Forex market by creating volatility, indices and stock market by increasing or decreasing investment and on commodities like Gold depending on the positive or negative data .

NFP Effect on Forex Market

The NFP effect on the Forex market brings volatility on majority currency pairs because USD currency is world reserve currency and when USD moves that means currency pair in Forex also moves.

NFP data affects USD currency by increasing dollar strength when the NFP data is positive or decreasing dollar strength when the NFP data is negative.

How Does NFP Affect EURUSD?

This is visible on the chart here where you can see that bad NFP data affects dollar strength where EUR/USD pair price is increasing. Which means EUR is gaining strength and the dollar is losing strength.

NFT release 7.1.2022

After NFP data was worse than forecasted the EURUSD price started to rise in value. That means EUR was gaining on strength.

NFT release market reaction

Does NFP Affect AUD?

Yes, NFP affects AUD by increasing AUD strength if the NFP data is worse than expected and decreasing the AUD strength if the NFP data is better than expected.

If you take a look at the chart of AUD/USD currency pair you will see that AUD started to gain on strength after bad NFP data was published.

NFT release 7.1.2022
NFP effect on AUD_1

NFP Effect on Commodity Market

Commodities like Gold are affected by the NFP release where Gold gains strength if the NFP data is bad and Gold loses strength when NFP data is good.

Other commodities like Crude Oil BRENT are also affected by the NFP and it is positively correlated with USD.

When bad NFP data is released the USD currency will lose strength, but Crude Oil will also lose its value.

Here you have a chart where you can see how the price of Crude Oil is declining when bad NFP data is released.

NFT release 7.1.2022
NFP effect on Crude Oil

How Does NFP Affect Gold?

Because Gold is closely connected with USD in a way where Gold is a safe haven when U.S. dollar is losing strength. So, Gold value will move in the opposite direction compared to USD.

If the NFP data is positive that means USD will rise in value, but Gold will lose value.

Check the chart where you can see how XAUUSD price is rising when NFP data is bad.

NFP effect on Gold

How Do You Trade With NFP Gold?

When you see the chart with the XAUUSD pair you can see that the value of XAUUSD is rising in value.

That means you trade Gold with NFP by buying Gold when there is bad NFP data released. Bad NFP data will mean the U.S. dollar is not that strong so investors will seek a better place for their investment.

And that is Gold at the moment when the NFP report is bad.

How Does Non-Farm Payroll Affect Stocks?

Non-farm payroll reports will have an effect on the stock market by increasing confidence in the U.S. stocks if the NFP data is positive.

That means employment in the U.S. market is increasing which is a result of a good economy. An economy consists of companies that make value.

And some of those companies are listed on the stock market which will increase the stock price of certain companies.

When investors see the price is rising they will invest even more which will lead to stock market rise.

NFP Effect on S&P 500 Indice

You can see that by looking into the S&P 500 index on the chart. When the NFP data is positive the market will rise and when NFP data is negative the price of the S&P 500 will decline.

In this case we have negative results on the NFP report so the S&P 500 is losing in price.

NFP effect on SP500

How Does NFP Affect Nasdaq?

NFP affects Nasdaq by reducing the value of Nasdaq indices which you can see on the chart where the price is declining when the NFP bad results were published.

NFP effect on NASDAQ

“Disclosure: Some of the links in this post are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission. This does not cost you anything extra on the usual cost of the product, and may sometimes cost less as I have some affiliate discounts in place I can offer you”

Frano Grgić

Frano Grgić

A Forex trader since 2009. I like to share my knowledge and I like to analyze the markets. My goal is to have a website which will be the first choice for traders and beginners. Market analysis is featured by Forex Factory next to large publications like DailyFX, Bloomberg... GetKnowTrading is becoming recognized among traders as a website with simple and effective market analysis.

Beginners Online Course

Check the best online trading course for beginners

Beginners Online Course

Check the best online trading course for beginners

Email Newsletter

Join thousands traders that get the best articles in their mailbox

Forex Trading

Forex Trading Guide

1. Forex Trading for Beginners
4. Forex Trading Basics
6. Technical Analysis
7. Forex Trading Broker
8. Forex Trading Questions

0 Comments

Pin It on Pinterest

Shares
Share This