Your Quick Guide to Non-Farm Payroll Report

The Non-Farm Payroll (NFP) Report is the main report that describes the strength (or weakness) of the employment situation in the United States every month. This report is one of the most important statistics for the American Central Bank, also known as the FED. What is the NFP Report? Why is it important for the FOREX trader? What does it mean for the FED?

Your Quick Guide to Non-Farm Payroll Report

When is it published?

The Non-Farm Payroll is published on the first Friday of every month by the Bureau of Labor Statistics (BLS). The BLS is the main fact-finding agency for the Federal Government relating to labor economics and statistics. The report is published at 8:30 am – New-York time. 

What is the job report composed of?

The job market is a good barometer to the health of the American economy, and the NFP report is one of the best insights into whether the U.S. economy is accelerating or otherwise.

Two monthly surveys make up the NFP report, which provides a comprehensive view of the employment situation and future trends – these two surveys are the Household Survey (also known as the “CPS”) and the Establishment Survey (also known as the “CES”).

The CPS (Current Population Survey) provides information including the labor force, the employment and unemployment with a demographic breakdown.

The CES (Current Employment Statistics) provides a geographic breakdown of the employment situation, as well as a breakdown by industry. You can also find information about hourly gains and hours worked.

You can find some of the following information on the U.S. employment situation:

  • Number of American jobs created for the non-agricultural sector,
  • Employment/Unemployment rate,
  • Job creation or destruction breakdown by industries,
  • Wage increase or decrease breakdown by sectors,
  • Labor force participation rate,
  • Number of people discouraged by the labor market,
  • Number of people leaving the labor market,
  • Part time workforce who would prefer to work full-time ,
  • Hours worked growth…

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Why does the NFP influence the FOREX market?

The Non-Farm Payroll data takes into account almost 80% of the country’s workforce. Therefore, analysing this data helps you understand how healthy the American economy is and how it can influence the FOMC’s decisions about its monetary policy, which in turn affects all asset classes.

About the job situation:

If more people have a job, then more people receive a salary, which in turn boosts consumer spending, which accounts for about 60% of the American GDP. If there are more jobs, then you can reasonably assume that businesses need more people to work on their products. This is good for the economy, as this generally influences more investment spending, as well as inflation. Healthy employment figures are a sign that the economy is doing well, as there are more orders to be filled and businesses are more confident about the future.

About inflation:

Monitoring hourly wages growth is generally a good indicator of the inflation trend. With higher salaries, consumer spending is expected to increase, so the demand for goods and services should also increase. If demand exceeds supply, higher prices should occur. Another reason why experts monitor inflationary pressures through wages growth is the fact that if wages increase, then goods should be more expensive to produce. As the factors of production have increased, companies could pass this increase onto the final sale price.

The FED has 2 main objectives: full employment (the unemployment target rate is 4.9%) and stable inflation (PCE indicator at 2%), so this report is important market moving news – as it impacts all asset classes.

These figures will show how close (or far) the FED is from its objectives. Therefore, it will indicate a higher (or lower) probability of a change in the American monetary policy – either easing or tightening – during their next meeting. The dollar will then strengthen when the probability of a rate hike is higher, and vice-versa.

Everything is then linked to how monetary policies impact currencies and how investors’ expectations about central banks’ future decisions shape the market. Please read our last article regarding the Importance of Central Banks on the FOREX market. You may also find interesting how the USD price changes impact commodities: Understanding the correlation between USD and Commodities.

 

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