Non-Farm Payroll

The change in jobs in the economy over the previous month that does not include farm workers, private household employees, or non-profits

What is Non-Farm Payroll?

Non-farm payroll represents the change in jobs in the economy over the previous month that does not include farm workers, private household employees, or non-profits. The statistic is released by the U.S. Department of Labor and is a key indicator of the labor market.

 

Non-Farm Payroll

 

The non-farm payroll data helps present the overall health of the U.S. economy and its workforce. Investors watch it closely, and it is always released on the third Friday of the month at 8:30 a.m. Eastern Time (EST).

Generally, investors quickly react to the figure, and there is a strong correlation to immediate market movement when the information is released. The figure is presented as a change from the previous month.

 

Summary

  • Non-farm payroll represents the change in jobs within the economy of the United States over the previous month that does not include farm workers, private household employees, or non-profits.
  • Non-farm payroll numbers are released by the United States Department of Labor and are considered a critical economic indicator.
  • Non-farm payroll contains other pieces of critical information, including (1) the overall unemployment rate of the United States, (2) the average hourly earnings of employees working in the labor force, and (3) specified sector increase or decrease.

 

Using the Non-Farm Payroll as an Indicator

A finance professional or market participant can use the non-farm payroll as a critical economic indicator to gauge whether the U.S. economy is headed towards a recession. It can help dictate the overall strategy an investor takes when determining whether to take long or short positions in companies that influence the non-farm payroll.

In addition, if you anticipate the non-farm payroll is going to be better or worse than expected, you can take a market position that could ride the volatility when it is released on its monthly Friday schedule.

For an employee thinking about perhaps switching careers or sectors, the non-farm payroll can provide a glimpse into the current state of various market sectors and whether they are hiring. It can help formulate a career and employment strategy.

 

Elements of the Non-Farm Payroll in Finance

The non-farm payroll report also includes other key pieces of information. The first is being the overall unemployment rate of the United States. The second is the average hourly earnings of employees working in the labor force, and the third piece of information is the specified sector increase or decrease, which gives investors and traders a window into growing and shrinking sectors of the economy.

This deep dive into employment figures gives investors insights into trades and possible positions. It can also use the hourly earnings information to help model companies’ future expenses and growth of individual sectors within the economy.

 

Job Creation and Market Participants

Understanding job creation trends is a critical piece of knowledge for any active member of the United States economy. Trends are constantly shifting regarding the growth and decline of different sectors and result in the physical movement of workers across state lines. It is done in correlation, in part, with non-farm payroll trends.

As market participants, we must interpret trends that can have long-term implications and consequences for our careers. When deciding on our major for college or which type of business to start up, the trends in the non-farm payroll can help us in long-term growth and assist with our career trajectories.

 

Related Readings

CFI offers the Certified Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Market Economy
  • Economic Indicators
  • Market Dynamics
  • Labor Force KPIs

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Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes!