Understanding Nonfarm Payrolls

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As the name suggests, Nonfarm Payrolls (NFP) is the measure of the number of workers in the United States that exclude:

-farmworkers

private household employees

government employees

non-profit organization employees

The reason why the aforementioned is excluded is because farm payroll is highly seasonal due to the large amounts of temporary labor hired during harvest season. By removing this large cyclical component, we can see the strength of the underlying economy.

So what is in an NFP report? It is a compiled name for goods, construction, and manufacturing companies within the U.S. measured and reported to the public by the Bureau of Labor Statistics (BLS) on a monthly basis.

Here’s why noting the dates of nonfarm payroll announcements are vital, especially for forex traders.

The NFP report is a key economic indicator for the U.S. that represents the total of paid workers excluding the bolded list above. The report contains crucial information on unemployment, job growth, and payrolls. The reason traders choose to acknowledge and investigate this data is that it provides a footing for analyzing potential rates of inflation, along with the rate of economic growth.

This report is one of the main causes of consistently large rate movements in the forex market. With so many analysts, traders, investors, and speculators interpreting the NFP number, even when it comes in line with estimates, it can still cause huge rate swings. Therefore, understanding this data release can help traders set up forex trades to take advantage of unexpected changes in employment.

Let’s take a look at the USD/EUR chart following the July 2019 NFP report which greatly exceeded its estimates and signaled continued economic strength in the U.S that boosted prices for the currency pair.

Thankfully, analyzing the necessary information that the NFP report provides is fairly simple for forex traders. Essentially, you will want to take note of the payroll figures and the number of jobs that are being added each month. By putting these figures next to its estimated counterparts, you can place these payroll numbers into context and gauge the overall health of the economy. A general rule of thumb is that forex traders want to see payroll numbers rise by at least 100,000 in any given month. It’s a healthy sign of growth in the economy and can potentially fuel bullish sentiments regarding the U.S. dollar.

Fortunately, our clients’ trading experience at GTL will be complemented with our upcoming NFP reminders so they will never miss important trading dates and other events worth anticipating.

Overall, the NFP report is a simple yet crucial piece of information any trader would want to keep in view when considering forex options and any stock which is influenced by the U.S. economy. Therefore, mark your calendar as we are certain that this data will typically spark volatility in the forex market that can spell great opportunities for the observant.

References:

https://www.investopedia.com/terms/n/nonfarmpayroll.asp
https://www.investopedia.com/articles/forex/09/non-farm-payroll-report.asp
https://www.investopedia.com/ask/answers/06/nonfarmpayrollandforex.asp
https://www.valutrades.com/en/blog/how-does-non-farm-payroll-affect-forex-trading