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Nonfarm Payrolls Overview and its Impact on Currencies

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Microeconomic Indicator in FOREX:

NFP

Acronym Expansion:

Nonfarm Payrolls

What are Nonfarm Payrolls?

‘Bureau of Labor Statistics’ releases a monthly report on the total number of jobs added or lost in the country compared to the previous month, which is known as Nonfarm Payroll. As the name suggests, these numbers do not include farm workers, employees who belong to non-profit organizations, unincorporated self-employment, employment by private households and also the military agencies. This report is released by the U.S. Bureau of Labor Statistics as a part of its Employment Situation Report or Jobs Report. Economists consider Nonfarm payroll report as an important tool to determine the overall health of the economy, as the entire Nonfarm payroll covers more than 80% of the workforce who produce almost entire Gross Domestic Product of the United States.

Apart from the information on jobs being gained or lost, NFP also helps in understanding the statistics of long term unemployment & youth unemployment rates. Along with that, NFP reports which individual sectors are gaining or losing employment. This will help the government in taking specific actions to improve the employment condition of that particular sector. These individual sectors include health care, business services, financial activities, construction, mining, wholesale & retail trade, transportation, warehousing, manufacturing, information security, leisure, and hospitality. 1994 & 2009 has the best and worst employment statistics, with former adding almost 3.5 million jobs while the later report losing ~5.05 million jobs due to the recession.

What does NFP measure?

As the NFP report measures the change in the total workforce on a monthly basis, economists use it as a  tool to gauge the health of an economy. If more jobs are added to the economy compared to the previous month, that is obviously a good sign for that country’s economy. NFP covers around 80% of jobs in the country who are major contributors to the country’s GDP. This report also covers the average work week, wage growth and average hourly earnings.

Reliable sources of information on ‘Nonfarm Payrolls’ for Major currencies: 

There is a lot of information with respect to NFP of different countries in the sources provided below. You can familiarize yourself with NFP data of the respective country along with the historical data related to that. You can also compare the NFP of one country to the other using this web portal. The graphical representation of the historical data will give you a clear understanding of how this data changed over time. You also get to change the graphical representations according to your preference. A ton of more information related to the latest news in that regard is provided to give you a better understanding.

USD – https://tradingeconomics.com/united-states/non-farm-payrolls

CHF – https://tradingeconomics.com/switzerland/non-farm-payrolls

CAD – https://tradingeconomics.com/canada/non-farm-payrolls

What do traders care about the Nonfarm Payrolls and its impact on the currency?

Nonfarm Payroll data has a direct impact on some of the major financial assets like the currency of the country, equities, and other precious metals. As the exchange markets like Forex are volatile, they react quickly when the NFP data is released. There is a strong correlation between this report and the strength of the country’s currency. This is because of the impact this data has on the economic health and GDP of the country. Economists also believe that there is a small negative correlation between the NFP data and the US dollar Index.

Job creation is an important indicator of consumer spending, which accounts for the overall economic health. Stock traders and analysts use the individual sectorial data to predict which stocks and sectors have strong earnings reports. Forex traders also consider this report as a very important indicator for the price fluctuation in the currency, at least during the time of its release.

Frequency of the release

The Bureau of Labor Statistics releases NFP data on a month-on-month basis. The preliminary data is generally released on the third Friday after the end of the reference week. This date typically occurs on the first Friday of the next month. So basically NFP data is released every month and the data is published on first Friday after the month end.

The Bottom Line

Generally, an increase in employment implies the growth in the businesses due to extensive hiring and people having more money to spend on goods and services as they are employed now. This eventually results in the economy being healthy. Contrarily, if there is a decrease in the number of people working, businesses won’t grow and the economy declines. NFP report is extremely important because it showcases the real-time data of the most important component of the economy, which is employment.

The NFP data usually range from 10,000 to 250,000 jobs adding to the economy during non-recessional times. Not to forget this NFP number does not include the jobs relating to the farming industry. Some revisions are also done to the previous month’s NFP data and these revisions move financial markets. If the revisions are positive, the prices of the currency may fluctuate and eventually move the market. Average hourly earnings is another important component of the NFP report. If the same number of people are employed but are working less number of hours and earning less money for that work, this basically will have the same effect as the decrease in the labour force and vice-versa.

 

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