What is NFP (Non-Farm Payroll Data)? (Key points/cheat sheet)

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Here are the key points from our video ‘What is NFP (Non-farm Payrolls)? (Employment Data) [Macroeconomics/ Economic Data Releases]’ that you can use as a reference guide or ‘cheat sheet’. The video is available on our YouTube channel and at the bottom of this article.

  • The non-farm payroll is an employment data release for the U.S. that is released in the ‘Employment Situation’ report. It gets its name because it doesn’t include farm workers in the data. It also doesn’t include private household employees, non-profit organisation employees or military and intelligence agencies either.
  • The reason for separating farm workers from the stats is down to the seasonality of the statistics. This is because there are certain times of the year when more farm workers are needed or are paid more. This isn’t such an issue now, but it was back in 1888 when the US had more of an agrarian economy and the BLS (Bureau for Labor Statistics) started conducting surveys.
  • Nowadays the economy for the US is largely dependent on consumer spending. That’s part of the reason the US NFP is so much more important as an economic indicator than other economies, because consumer spending in the US accounts for over two thirds of economic activity.
  • In Europe, there is more of a focus on manufacturing as the main factor in the growth of the economy, or elsewhere there might be a focus on exports.
  • NFP is perhaps a more reliable indicator than PMI, because it uses a larger sample size than the PMI (which bases its survey on 400 companies).
  • The NFP release is based on 400,000 companies in the establishment survey section and 60,000 households in the household survey section. (As traders we give much more importance to the establishment survey rather than the household.)
  • There are other job releases in the US, but since NFP comes out monthly, it is less volatile and is more stable. But that doesn’t mean it’s accurate all the time as it’s quite common to see revisions of previous months’ data in a new month’s release. These revisions are also important and can move the market or change our view on an economy, so we also need to take note of these, especially if the changes are significant
  • In basic terms, the NFP release is showing how many jobs were added or lost compared to the last month, for example it might be +150,000 which means 150,000 jobs were added since the previous month. If jobs are being added, it means businesses are hiring, which is a good indication of economic growth taking place.
  • You can actually get a bit deeper on this sort of information, because the jobs report doesn’t only show the headline number of jobs gained or lost, it also shows which sectors these changes came from. This is useful as a trader or investor, because it gives you advanced notice of which sectors may be growing or struggling.
  • The release also shows average hourly earnings, which is just as important as the jobs added or lost, because the headline figure on it’s own might be a bit misleading. For example, if jobs have been added, but the average hourly earnings have dropped, it may be the case that the economy is not actually doing any better. More people are in work, but they’re earning less, therefore it may be equivalent to a lower jobs number in absolute terms.
  • It’s important not to just look in isolation at the unemployment figure (which is given as a percentage of the workforce) or the jobs added or lost. We have to dig a little bit deeper to see whether it’s as good or as bad as we think.
  • NFP is one of the major economic releases, in terms of market volatility and ability to shift investor sentiment, but also in terms of how we can gauge the economic cycle and current situation.

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