What are Non-Farm Payrolls?

What are non-farm payrolls?

Key Takeaways: The US non-farm payrolls, or ‘NFPs’, are released by the US Bureau of Labor Statistics, usually on the first Friday of each month. They measure the number of employees on non-farm payrolls across the country, including private businesses and government agencies, while excluding farm workers, private household staff, the self-employed, unpaid family workers, and activeduty military.

The US non-farm payrolls, or 'NFPs', are an official statistic released by the US Department of Labor, usually on the first Friday of every month.

NFPs measure the number of employees on non-farm payrolls across the country, including private businesses and government agencies, while excluding farm workers, private household staff, the self-employed, unpaid family workers, and active-duty military.

Released along with the US unemployment rate, NFPs are an important indicator of the health of the US economy, and can signal trends for future economic data such as GDP and manufacturing figures. For instance:

• Strong month-on-month NFP data indicate a strengthening economy and possibly even a lower risk of recession

• Consistently falling figures could indicate economic weakness and the risk of a possible downturn

Why analysts and traders care

Analysts release forecasts ahead of the release of the NFP announcement, indicating a predicted number.

When the payroll figures differ from expectations, it could take the markets by surprise, affecting the US dollar’s position against other currencies - like the euro, sterling or yen - as well as major indices such as the Dow Jones Industrial Average.

Good to know

• Better-than-expected NFP →Likely stronger US dollar

• Lower-than-expected NFP →Likely lower US dollar

This is why trading NFPs can be an important aspect of your CFD trading strategy.

When are non-farm payrolls released?

NFPs are usually released at 1.30 pm (UK time) or 8.30 am (EST) on the first Friday of every month. Each report includes:

• Month-on-month data: last month compared to the prior month

• Year-on-year data: last month compared to the same month a year earlier

As a trader, you can take a position on the US dollar and US indices based on whether you expect NFPs to come in above or below forecasts.

How to trade the non-farm payrolls report

Some traders take a position in the markets around the NFP release because the data often causes sudden price movements, creating trading opportunities.

Example: Trading EUR/USD around NFP

Let's set the scene:

• It’s the first Friday of May

• You expect the NFP data released today to exceed analysts’ expectations

• EUR/USD is currently trading at 1.13835/1.13842 (sell price/buy price)

Forex is always traded in pairs, with the first currency - the base currency - quoted against the second (AKA the ‘counter’) currency. If you expect the first currency to rise against the second, you buy, whereas if you expect it to fall, you sell.

You believe that, buoyed by positive payroll figures, the US dollar will rise against a basket of currencies, including the euro. You take a short position on EUR/USD, selling at 1.13835, at $2 per point. This means that:

• For every point EUR moves lower against USD, you make $2

• For every point EUR moves higher against USD, you lose $2

Now, let’s say you were right and the official NFP release data exceeded expectations. The number of employed people in the US jumped by 5% month-on-month and 2.5% annually - a possible indication that the US economy has finally turned a corner.

The markets react positively, and within minutes, the US dollar has risen against the euro. When EUR/USD reaches 1.13813/1.13820, you decide to close your position, buying at 1.13820.

Remember: since EUR is the base currency and USD is the counter currency, the price of EUR/USD would have to fall in order for you to make a profit.

You sold at 1.13835 and bought at 1.13820, meaning you made a profit of $30 (1.13835 - 1.13820 x $2).

Had the NFP figures come in lower than expected, the opposite would have happened. For example, if the price of the euro increased against the dollar to 1.13850, you would have lost $30 (1.13835 - 1.13850 x $2).

Learn about forex trading.

Summary

• Keep an eye on the market and track analysts’ expectations to make more informed decisions when trading NFPs.

• Strong NFP data usually strengthens the USD, whereas weak data may drag it down.

• Consider the timing of your trades carefully, as NFP releases can cause sudden price movements in seconds.

Our intuitive and highly customizable CMC platform gives you access to an economic calendar, client sentiment and a range of trading tools and analyst reports, helping you devise a stronger and more effective trading strategy.