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What are non-farm payrolls?


You will often hear market analysts discussing US non-farm payrolls, but what is it and why is it important?

It is a figure published by the US Department of Labor, and covers employees for companies in the goods, costruction and manufacturing sectors. Not included, importantly, are farm workers, the employees of non-profit organisations and casual labour.

The figure is published by the US Bureau of Labor Statistics on the first Friday of the month. The number that comes out is the change in the total employment figure. Economists and other commentators use it as a measure of the number of jobs lost or gained in the economy over the previous month, not including more seasonal trends (this is why farm labour is stripped out).

Why are non-farm payrolls important?

A rise in this number means that US companies are hiring people. More people with jobs means more money being spent in the economy. A high number will be taken as good news for the overall US economy. Since 2011 investors have also become aware that the US Federal Reserve pays close attention to these numbers, when making decisions about quantitative easing and the direction of interest rates.

There is, however, other data included in the report which traders should pay attention to. This includes what the overall rate of unemployment is (lower unemployment can feed through into wage inflation), which sectors are doing the hiring (which can have implications for sector-based trades), and what the average hourly earnings look like.

Non-farm payrolls will have particular implications for assets like the US Dollar, US indices like the Dow Jones, Standard & Poors 500 and the Nasdaq, but also the gold price.

Traders should also be aware that the initial figure is more of an estimate, and that the Bureau can revise this figure once it has all the data in. Such revisions tend not to be too drastic, but sometimes the market can respond if it is in a particularly sensitive phase.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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