Non-farm payrolls (NFP) report: Definition and trading strategies

Non-agricultural payroll is a term used in the United States to refer to any job other than agricultural work, unregistered self-employment, and employment by private households, non-profit organizations, and military and intelligence services. Owners are also excluded. The U.S. Bureau of Labor Statistics publishes monthly, closely followed data on non-agricultural payroll as part of its Employment Situation Report. The total number of persons employed outside agriculture – the change in the total number of persons employed compared to the previous month – is used as an indicator of economic health.

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Fundamentals


Non-farm payroll is an indicator in the USA, which is produced by the Bureau of Labor Statistics. It represents the number of employees of about 80% of the workers in the country who contribute to American GDP. Not included in this figure are private domestic workers, farmworkers, government employees and employees of non-profit organizations.
Non-agricultural payrolls are reported on the first Friday of the following month, with occasional exceptions, at 8:30 am. The data is used to help politicians and economists determine the current state of the economy and predict future economic growth. It shows how many jobs have been lost or created compared to the previous month or year. It can also be used to forecast the future development of the economy. If the number of employees rises, this will generally be seen as a good sign for the economy as households have more money available for consumption or investment.
In addition to the number of employees, these statistics also include the unemployment rate as measured by the labour force available on the market, the number of employees by sector, average hourly wages and a revision of the previous publication.

Why the report on payrolls outside agriculture is important


The primary statistic from the non-agricultural payroll report is the number of additional jobs added in the previous month. The report also contains many valuable insights into the labour force that directly affect the stock market, the value of the US dollar and the price of gold. The non-agricultural payroll report is an essential tool for determining the general state of the economy. The total non-agricultural payroll accounts for about 80% of the workers who produce the total Gross Domestic Product (GDP) of the United States.
The non-agricultural payroll report shows statistics on unemployment for the U.S. labor force. This is communicated by a total unemployment rate, a long-term unemployment rate and a youth unemployment rate. The employment rate is also a key statistic to determine the actual unemployment rate in the country.
Non-farm payroll plays a vital role for investors and other market participants, as the Federal Reserve’s monetary policy is based on this indicator. The strength of the US dollar is also related to employment and the resulting GDP. Non-farm payrolls always increase market volatility. This U.S. Labour Market Report appears on the first or second Friday of each month.

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Day traders like to trade when the non-farm payrolls come out. The goal is to jump on a significant movement and achieve a high profit by these quick market moves. The release of the non-farm payrolls often leads to a substantial increase in volatility. Especially those financial instruments that are linked to the US dollar experience extreme volatility in the first five to ten minutes after the release of this key data. The gold price, major currency pairs such as EUR/USD, GBP/USD, JPY/USD and AUD/USD but also prices of oil and other commodities are typically affected most.

What the payroll outside agriculture reports can be use for


Non-agricultural payroll statistics also show in which sectors employment growth is highest, with a focus on high profits and losses. The list of sectors covered by the report includes business and professional services, health, finance, mining, construction, manufacturing, wholesale trade, retail trade, transport and storage, information, government and recreation and hospitality. This breakdown is often used by equity analysts to predict which stocks and sectors have strong earnings reports.
The report also includes the average working week, average hourly wage and wage increase. The Monthly Report may contain changes to previous reports.
The best month for wage increases is usually May with an average of 129,000 additional jobs. August is the worst month with an average of 69,000 additional jobs. The year 1994 was the best ever with 3.85 million additional jobs. This year, every monthly report on payroll accounting outside agriculture showed profits. In 2009, the workforce lost 5.05 million jobs, the worst statistical year for non-agricultural employment. Meanwhile, employment growth in 2017 was 2.1 million, compared to 2.2 million in 2016.

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