What are Nonfarm Payrolls?

1. What are Nonfarm Payrolls?

Nonfam Payrolls (NFP) is part of the Employment Report, released by the United States Department of Labor. The Nonfarm Payrolls report includes three key components: Labor force participation rate; Unemployment rate; Average hourly earnings.

The Nonfarm Payrolls report is of most interest because it measures the actual number of paid workers (full and part-time).

NFP – Nonfarm Payrolls is a newsletter that has a very strong impact on the Forex market. NFP Statistics on the number of jobs lost or added to the economy in the last month offers an important insight into a country’s economic health, as jobs (and job creation) are key. for traders’ expectations about a country’s medium to long-term economic outlook.

Published employment data represents all salaried U.S. workers at any business, with the exception of:

• Private (household)
• Non-profit employee
• Farmers work on farms.

2. Why is NFP – Nonfarm Payrolls important

Employment is the backbone of economic growth. An increase in the unemployment rate in a country will adversely affect economic growth. This means that traders will have a very bad expectation about the economic health of that country.

Employment figures can also have an impact on interest rates. The reason is that an increase in employment will lead to an increase in interest rates. Central banks raise interest rates with the aim of balancing inflation with growth.

The correlation between Employment Quantity and Interest is an important factor for Forex traders. Because interest rates play an important role when it comes to Forex trading.

The only way to track the Unemployment Rate is through the Nonfarm Payrolls newsletter.

NFP is a very important indicator because of its importance to the volatility of the currency market in general and the US dollar in particular.

3. How to read Nonfarm Payrolls newsletter data

Nonfarm Payrolls consists of three main components:

1) Unemployment rate;

2) Labor force participation rate;

3) Average hourly earnings. And we need to read, understand all three components.

The mistake of traders is to set these three numbers as three independent data and have no relation to other metrics.

3.1. Unemployment rate – Unemployment rate

Unemployment Rate – The unemployment rate mentioned by most analysts. When this data keeps increasing, it is considered an early sign of a recession.

The employment report will be divided into two main sections: the Household Survey and the Payroll Survey.

Household Survey: A telephone survey conducted by BLS. This survey measures the unemployment rate and many other factors. If an individual works part-time, or sells on Amazon, Ebay, etc., they will be included in this survey. In the case of an individual doing 03 part-time jobs. And a total working time of 12 hours/day is considered full-time. As such, this group is not considered unemployed.

Quitting from the workforce: When an individual is out of work and has failed to find a job in the last month.

Looking for a job: When an individual conducts an actual interview or submits a resume to apply for a job.

When a person in the Quitting category leaves the labor force, they are not considered unemployed.

The downside of this calculation is that it causes the Unemployment Rate to fall artificially. The rate of full-time employment has increased unreasonably. (Total part-time work of three jobs).

The overall picture of the Unemployment Rate that needs to be considered is:

• Force quit the job.
• Force is working part-time want a full-time job.
• Individuals who have recently dropped out of school and come of age but have not yet entered a job search.

3.2. Labor Force Participation rate – Labor force participation rate

The labor force participation rate is also published by the BLS. This is the percentage of total working-age people who are working or looking for work. In the United States, ages 18-65 are considered working age.

We need to make a very clear distinction because the Labor Force Participation Rate has the potential to change the unemployment rate.

Example: When the rate of citizens reaching working age increases (reaching 18 years old) and they start looking for work, the unemployment rate will increase. But this is by no means bad for the economy. It is a positive signal despite the increase in the Unemployment Rate. This is the case where Unemployment increases and Labor Force increases.

Only when a decline in labor force participation causes the Unemployment Rate to rise (Unemployment/Labor Force) is that a bad economic signal. In this case, the decrease in Labor Force is the factor that causes the Unemployment Rate to increase.

3.3. Average Hourly Earnings – Average Hourly Earning

Average Hourly Earnings – Average hourly earnings are also published by the US Department of Labor. This is a significant indicator of labor cost inflation. The data in the report typically accounts for about 80% of all U.S. workers, of which U.S. GDP (Gross Domestic Product) workers

Explanation: If a worker’s income increases, it will be good for future spending. Because wages and salaries from employment make up the main source of household income. The Federal Reserve – The Fed pays attention to this data when looking at interest rate policy, because of its strong correlation with inflation.

 

Low wages are not enough to cover living expenses, people will tend to tighten their spending. Low wages are likely to lower the inflation rate. On the contrary, when wages are high and continuously increasing, it is likely that the Inflation Rate will increase.

4. Who is dealing with the Nonfarm Payrolls newsletter

There are many people who use the data of the Nonfarm Payrolls newsletter for many different purposes. Including traders on the Forex market.

At the time the Nonfarm Payrolls newsletter is released there will usually be strong volatility in the Forex market. Especially currency pairs related to USD.

The three currency pairs most affected by the NFP data are:

• XAU/USD – Gold
• EUR/USD
• GBP/USD

The habit of only trading when economic data is released is the weakness of individual traders. Published data and its impact are not appropriately reviewed and evaluated.

Macroeconomic data should be observed and evaluated based on the overall picture of the economy. At the same time, it will also predict the health of the economy in advance, thereby telling the trader about the currency strength of the country.

The Economic data articles that To provide are meant to talk about the Meaning of Newsletters. The impact of the news on Macroeconomics leads to the adjustment in monetary policy of central banks.

Try to get in the habit of seeing the true nature of your data.

6. Summary of Nonfarm Payrolls

To learn Forex properly requires the right method and approach. Forex not only has Technical Analysis, but also fundamental analysis, market sentiment analysis. How to properly read and appreciate the nature of the Nonfarm newsletter will help traders understand the principles of fluctuations in the forex market.

Not only that, NFP data also helps investors to properly assess the health of the economy. This data is not only relevant to the Forex market, it is also relevant to the Stock market and Macroeconomics in the medium and long term.

Knowing what NFP means will answer many questions. You will no longer wonder why the NFP news is good, but the USD does not rise, or vice versa. As it is not a standalone data. NFP consists of three main components. Always remember and it will follow throughout your trading career.