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What Effect Does Nonfarm Payroll Employment Have on the US Economy?

What Effect Does Nonfarm Payroll Employment Have on the US Economy?

An important date in any economic calendar, and closely watched by financial investors, is the public release of the Nonfarm Payroll Report. This report is a record of the level of employment in the United States (US), so it includes vital data that can inform the analysis of the future economic growth, interest rates, and inflation in the US.

In this article we will explain further how the data in this report reflects the state of the US economy, as well as its effect on the financial markets.

What Is the Nonfarm Payroll Report?

This report, sometimes known as the Employment Situation Report, is conducted by the US Bureau of Labor Statistics, and collates the data on the number of workforce employed in the sectors of construction, manufacturing, and goods, without including those who work in the agricultural industry. It also excludes those who are employed by the US government, are volunteers, and those who work in private households.

The Nonfarm Payroll Report is released on the first Friday of each month, and refers to the previous months’ data. The data is collected via two types of surveys:

  • The Household Survey – this includes all the information and data relevant to employment demographics such as gender, race, education and age. It also specifically refers to the levels of unemployment.
    A subsection of this, the Household Survey Supplemental Data, refers to other elements such as changes in type of employment, and the abilities to work and look for employment.
  • The Establishment Survey – this involves the number of Nonfarm employments, including any additional jobs in these sectors. It refers to the data in accordance with the number of jobs by industry, the hours worked, and the average hourly earnings. This is also the section that is most commonly used in reference to the Nonfarm Payroll Report.

The information collected as a result of these two surveys is then released to the public to show any fluctuation in employment.

How Do Nonfarm Payrolls Affect the Economy?

The report is a good way to analyze employment retention, which will reflect the likelihood of economic growth. An increase in Nonfarm payroll jobs from month to month implies that companies can afford to employ more staff and that more people are receiving a wage. In turn, this can encourage the overall growth of the economy.

For example, in the latest Nonfarm Payroll Report released on the second of April 2021 in reference to the data of March, the US Bureau of Labor Statistics reported that nonfarm payroll employment rose by 916,000, and the unemployment rate edged down to 6%. This reflects the recovery of the economy after the impacts of the Coronavirus pandemic. It was also reported that gains in employment were mainly made in the sectors of leisure and hospitality, public and private education, and construction – another likely effect of post-pandemic recovery.

If the report shows a decrease in the employment rates of nonfarm payrolls, then this could imply a negative trajectory for the US’ economy, resulting in a rise in inflation. The Employment Situation Report for April’s data is scheduled to be released on May 7th 2021.

What Is the Impact on Financial Investors?

As one of the biggest economies in the world, the performance of national employment rates in the US can have an impact on the trends of the financial markets. This is particularly linked to the change in interest rates, which can affect the movement in value of currency pairs, stocks, and commodities.

The improvement in employment also is reflective of the individual stocks, as this could relate to likely expansion of businesses, which bodes well for their overall value. On a macro level, the health of the US economy can impact the price of the dollar and gold. If partaking in CFD trading on Plus500 for example, investors can speculate on the price movements of the forex or commodities market in accordance to this data, as there is always volatility in the markets after its public release.

Investors can use the Nonfarm Payroll Report as an indicator, as part of their trading strategy, combined with analysis of the data to provide information from which they can enter or exit the relevant market accordingly.


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by Harvey Carr // Harvey Carr is a contributor to Businessing Magazine.

Opinions expressed by contributors are their own.