What are non-farm payrolls?
The US non-farm payrolls, or 'NFPs', is an official statistic released by the US Department of Labor, usually on the first Friday of every month.
The non-farm payrolls measure the number of people currently in employment in the US and are released along with the US unemployment rate. Both are important yardsticks used by traders and analysts alike to get an insight into the health of the US economy. Specifically, the non-farm payrolls measure the number of people in employment in all businesses across the country, excluding agricultural, local government, private household and not-for-profit sectors.
The non-farm payrolls are considered to be one of the most robust measures of the health of the US economy, as they can give an insight into future important data releases such as gross domestic product ('GDP') figures and manufacturing data. This is because the higher the number of people in employment in a country, the better its economic output can be expected to be at the end of the quarter and vice versa.
For instance, consistently falling non-farm payroll figures could indicate weakness and the risk of a possible recession, whereas consistently robust data on a month-on-month basis could show a strengthening economy, possibly even indicating that the economy may be out of danger of falling into a recession.
Analysts release forecasts ahead of the release of the non-farm payrolls announcement, indicating a predicted number. When the payroll figures come in above expectations, or miss estimates on their release, it could take the markets by surprise and have a positive or negative impact on the US dollar and headline indices such as the Dow Jones Industrial Average. For instance, a better-than-expected NFP release could push the US dollar higher against other currencies, whereas lower-than-expected data may put pressure on the value of the US dollar against a basket of other currencies such as the euro, sterling or yen. It is for this reason that trading the non-farm payrolls can form an important aspect of your trading strategy.
When are non-farm payrolls released?
The non-farm payrolls are usually released at 1.30pm (UK time), or 8.30am (EST) on the first Friday of every month and offer trading insights into month-on-month and year-on-year data. Month-on-month shows last month’s number compared to the prior month, while year-on-year shows last month’s figure 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 think the non-farm payrolls will come in above or below expectations.
How to trade the non-farm payrolls report
Some traders take a position in the markets around the NFP release as the data has historically been known to cause sudden price movements in the market, giving rise to potential trading opportunities.
Summary
As a trader, it's important that you keep an eye on the market and track analysts’ expectations, so that you can make more informed decisions when trading the non-farm payrolls.
The trading platform offers a range of trading tools and analyst reports, including access to an economic calendar, client sentiment and a host of analyst reports and trading tools, so you can devise a stronger and more effective trading strategy.
Source: CMC Markets UK
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