What is Nonfarm Payroll?

By Onur Yılmaz

Mar 31, 2023

Level: Beginner

Reading time: 3 min

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What is NFP

The nonfarm payroll measures the number of workers in the U.S. except those in farming, private households, proprietors, non-profit employees, and active military. Announced by The Bureau of Labor Statistics (BLS) on the first Friday of each month at 8:30 AM ET and reflects the previous month’s data. The Bureau of Labor Statistics (BLS) surveys private and government entities throughout the U.S. to obtain information about their payrolls.

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Why is Nonfarm Payroll data important?

According to the BLS, nonfarm employee classifications account for approximately 80% of U.S. business sectors contributing to gross domestic product (GDP). Nonfarm payrolls include 80% of the number of workers in the U.S. and exclude farm workers and workers in several other job classifications. Non-farm payroll contains other pieces of critical information, including the overall unemployment rate of the United States, the average hourly earnings of employees working in the labor force, and specified sector increase or decrease.

Besides farm workers, other categories excluded from the nonfarm payroll numbers include:

Civilian government employees are counted except for government-appointed officials, and employees of the Central Intelligence Agency, National Security Agency, the National Imagery and Mapping Agency, and the Defense Intelligence Agency
Active military service members
Private household employees and domestic household workers
Unincorporated business owners such as sole proprietors and self-employed workers that operate without registered business incorporation
Non-profit employees

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How do Nonfarm Payrolls impact the financial market?

The nonfarm payroll additions and the unemployment rate are headlines of the Employment Situation report, but economists and policymakers use all available data to assess the state of the economy and forecast future levels of economic activity.

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The report contains insights into the labor force that directly impact the economy, the stock market, the value of the U.S. dollar, the value of treasuries, and the price of gold. The Household Survey data reveals trends in the unemployment rate and participation rate that may be associated with demographics. The Establishment Survey report offers valuable information on job changes within sectors or industries.

The report contains data and statistics regarding the employment situation in the United States, which can identify trends in economic growth, inflation, housing starts, and gross domestic product, all of which affect the movement of financial markets. From the moment the data is announced, it creates a huge impact on the markets.

How to interpret the NFP in the economic calendar?

An investor can use the non-farm payroll as a critical economic indicator to gauge whether the U.S. economy is headed towards a recession. It can help dictate the overall strategy an investor takes when determining whether to take long or short positions in companies that influence the non-farm payroll.

The announced data is higher than the expected data creates a positive effect for the US dollar, while the lower disclosure creates a negative effect. Hourly average earnings and unemployment rate data announced together with non-farm employment data have a great impact on the markets.

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