Thursday, 3 August 2017
A Brief Guide To Understand Nonfarm Payrolls
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And here we go again… Nonfarm payrolls seem to be taking once again all headlines. But do you really understand what’s behind this report and why is it so relevant to market players? In case you don’t (as most of us), let us quickly break it for you.
A big term
The term “Nonfarm Payrolls” refers to any job that does not fall into a farm, military or intelligence work category. Self-employment is also excluded. This report is presented by the US Bureau of Labor Statistics first Friday of each month as of 12:30 GMT.
Top figures
The report includes few numbers of interest for traders that serve to determine the strength of the world’s first economy labor market. The monthly change in the total number of NPF, as well as the unemployment rate and the average hourly earnings are the most relevant figures.
Why it matters?
Nonfarm payrolls are not just numbers, there are people behind those figures. Americans all across the country and if NFP go south, it means more people is losing their jobs, which ultimately means less consumption, less inflation, less economic growth.
Since the 2008 financial crisis, the United States labor market has been recovering month after month and it’s now proudly standing at one of its best stages ever, with the unemployment rate at a record low level of only 4.4 percent. And the Federal Reserve knows it.
Another important argument behind the importance of the NFP report is indeed its influence on monetary policy decisions. The Federal Reserve not once said that the monetary normalization process (raising interest rates) depends on two factors: labor market strength and inflation.
Last month
According to the June report, the American economy added 222,000 jobs in June, surpassing expectations. Average hourly earnings were up by 0.2 percent and the unemployment rate stood at 4.4 percent.
What’s ahead?
On Friday we’ll get a look at the latest figures for July, with economists forecasting a 0.3 percent increase of hourly earnings and a 183,000 jobs build. The unemployment rate is expected to tick down to 4.3 percent. Stay tuned.
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The Directorate of Labor publishes a summary of non-agricultural employment data on the first Friday of each month. Given that the data is of great value in determining the current unemployment rate and that some parts are looking ahead, they are eagerly welcomed by markets and economists. In addition to individuals and Affordable Law Assignment Help academics, the Fed also carefully examines non-labor data as part of the interest rate determination process.
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