What is the non-farm payrolls report?
The non-farms payroll report (NFP) is the monthly release of data on the 80% of the US workforce employed in manufacturing, construction and goods.
As the name suggests, it does not include those who work on farms, and also excludes private households, non-profit workers and government employees.
Why is the non-farm payroll report important?
The non-farm payroll release gives an invaluable insight into the state of the world’s biggest economy, showing how US business is performing and offering an indication of where the Federal Reserve might take interest rates in the near future.
The overall number of jobs added or subtracted is an indicator of the health of the economy as a whole, and are part of the Federal Reserve’s mandate on employment – so the FOMC will pay attention to NFP figures when deciding whether to raise or lower rates.
For example, a high number of jobs can be taken as a sign of inflationary pressures, which may lead to an interest rate hike. A fall in the number, meanwhile, may indicate a declining economy, increasing the chances of a rate cut.
Interest rates have a major part to play in the movements of forex, stocks and commodities, so the non-farms report can reverberate across global markets in a big way.
How to trade non-farm payrolls
Trading non-farms payrolls can present the opportunity for increased profits on a variety of markets, but the announcement can cause volatility, increasing risk.
Prior to the release, economists will attempt to predict what the headline NFP number will be, usually arriving at a consensus estimate. The market fallout from the release can then be magnified depending on the closeness of the estimate to the actual figure.
Some of the markets that are likely to be most affected are:
- Forex: A healthy US economy will attract investment from around the word, driving up the price of the US dollar. This affects major currency pairs, such as GBP/USD, EUR/USD and AUD/USD
- Indices: Strong employment is a sign that businesses are doing well – but a strong dollar can negatively affected US indices such as Dow Jones, the S&P 500 and the NASDAQ
- Commodities: If it looks like the US economy is performing poorly, traders may turn to safe havens, such as gold and silver
Example: Oct 8,2021 Results were significantly below Forecast - 194k of new work places against 490k anticipated. As results - it shows that USA economy is weaker than expected - hence USD becomes weaker - causing all the assets trading against USD to go Up. Below is the screenshot of Figures released on the day and Graphs with results of NFP on different markets.
Please Note: that These moves happen exactly after the announcement of NFP and usually playout with in an hour - So very quick profits can be secured by trading on fundamental economic data that is regularly released by USA government.
Private payrolls increased by 247,000 in April, well below the estimate, ADP says
- Private payrolls increased by just 247,000 for April, payrolls processing firm ADP reported.
- That was well below the estimate for 390,000 and a significant decline from March, which saw an upwardly revised gain of 479,000.
- The report serves as a precursor to Friday’s nonfarm payrolls count, though the two can differ by wide margins.
Companies added far fewer jobs than expected in April as the struggle to find workers to fill open positions continued, payrolls processing firm ADP reported Wednesday.
Private payrolls increased by just 247,000 for the month, well below the 390,000 Dow Jones estimate. That was a big decline from March, which saw an upwardly revised gain of 479,000.
A drop-off in small business hiring was the primary culprit for the disappointment, as companies with fewer than 50 workers saw a decline of 120,000. The issue was particularly acute in those with fewer than 20 employees, which lost 96,000 workers on the month.
“In April, the labor market recovery showed signs of slowing as the economy approaches full employment,” said ADP’s chief economist, Nela Richardson. “While hiring demand remains strong, labor supply shortages caused job gains to soften for both goods producers and services providers.”
Big businesses with 500 or more workers compensated for some of the decline, adding 321,000.
Leisure and hospitality businesses led job creation with 77,000 additions. Professional and business services grew by 50,000 and education and health services contributed 48,000 to the total.
Information services was the only sector to report a decline, losing 2,000 workers.
In all, services-related industries comprised 202,000 of the total while goods producers added 46,000, led by manufacturing’s 25,000, while construction grew by 16,000. (The totals are rounded.)
The ADP report serves as a precursor to Friday’s more closely watched nonfarm payrolls count from the Bureau of Labor Statistics.
That report is expected to show growth of 400,000 and a decline in the unemployment rate to 3.5%. If that forecast for the jobless rate is correct, it will match the pre-pandemic level, which was the lowest since December 1969. Payrolls increased by 431,000 in March.
Importance of NFP On the Markets.
FED's main objective is to key price stability and Full employment in the Economy- Statement made by the Chair Of FED Jerrome Powell when quantitative Easing was done to stimulate economy after the COVID ressession in 2020
Accomoditive quantative stance of the FED allowed ecomony's GDP to recover out of Recession & lowered unemployemnt to levels last seen in 1969 - Which is great news for USA ecomony & markets. However it cames with the Cost of highest Inflation which is currently highest levels not seen by USA since 1960's.
Current NFP results are used at a guide for the FED on how tightly they can fight inflation now by increasing Interest Rate's - as Increase in Interest Rates is by nature Deflationary - it Removes eccess of money from the markets by charging higher interest on the borrowing of capital. In other words, when inflation is growing - more capital is chashing constant amont of goods - hence we get higher prices.
Increase in Interest rates fights this by removing excess liquidity from the markets by imposing higher costs of borrowing.
Therefore, if FED gets the tightening right- they slow down inflation and cause limited damage to the economy- as any luqiudity removal - lowers prices for any assets on the market. Because there's now relatively less cash chassing a particular asset to aquire.
If the NFP results are higher than anticipated, USA economy is performaning better than expected - hence FED may step up on Increase in Interest Rate as economy is able to take that blow relatively Well, as Labour market is therefore strong - given good results of NFP.
If this happens - Higher or Equal to Results of NFP would cause USD to strengthen up and cause a Drop in all Major assets that are traded against USD. for Example - Gold, US500,USTEC, EUR, GBP,NZD,Bitcoin, ETH all will slump on release of higher than expected results of NFP.
This is very unique and effective way to profit on financial markets - trading fundamental data from Goverment Reports - because all market participants are anticipating the results and taking action on release.
If The NFP results are lower than Anticipated - Than USA economy is relatively underperforming to the forecasted figures, and FED may need to slow down with quantitative tightening in order not to damage Labour Market more than its willing to do.
In This case USD Will become weaker and thefore cause a spike in prices of assets on the market.