News & Analysis

What is Nonfarm Payroll (NFP)

25 October 2020 By GO Markets


NFP is a significant economic indicator released monthly by the U.S. Bureau of Labor Statistics. It provides a comprehensive overview of the employment situation within the United States, making it one of the most closely watched economic reports in the financial world.

Understanding NFP

The Non-Farm Payroll (NFP) report serves as a gauge in the realm of economic indicators, offering insights into the employment landscape of the United States. Specifically, the NFP report quantifies the aggregate number of compensated American workers, deliberately excluding certain categories such as agricultural workers, government employees, private household staff, and those employed within nonprofit organisations. This deliberate omission of such sectors is what lends the term “nonfarm” to this influential economic metric.

Crucially, the data encapsulated within the NFP report provides a holistic overview of the employment scenario, encompassing both full-time and part-time workers. By incorporating this comprehensive view of the workforce, the report becomes a valuable tool for analysts, policymakers, and investors, enabling them to discern nuanced trends and patterns within the labour market. The intricate details of full-time and part-time employment shed light on the multifaceted nature of the U.S. workforce, offering a more nuanced understanding of economic dynamics.

In essence, the NFP report stands as a testament to the intricate tapestry of the American job market. Its exclusion criteria, shaping it into a “nonfarm” indicator, serves the vital purpose of capturing a specific segment of the working population, allowing for focused analysis and informed decision-making in the realm of economics and finance.

Why NFP is Important:

Economic Health: NFP numbers offer valuable insights into the economic health of the United States. A higher number of jobs added usually indicates a growing economy, while a lower number can suggest economic slowdown or recession.

Interest Rates: Central banks, especially the Federal Reserve in the U.S., closely monitor NFP data. A robust job market can lead to inflationary pressures, influencing the central bank’s decision on interest rates. Higher NFP numbers might prompt the Fed to consider raising interest rates to prevent the economy from overheating.

Market Impact: Financial markets, including stocks, bonds, and currencies, often experience significant volatility around the time of the NFP release. Positive NFP figures can boost investor confidence, leading to a rise in stock prices. Conversely, weaker-than-expected NFP numbers can lead to market declines.

Consumer Spending: Job creation directly impacts consumer spending. When employment is high, consumers are more likely to spend, which, in turn, stimulates economic growth. Consequently, NFP data can be a significant factor for businesses planning their strategies based on consumer behaviour.

Factors Influencing NFP:

Economic Policies: Government fiscal policies, such as tax reforms and infrastructure spending, can influence job creation. Additionally, monetary policies set by the central bank affect interest rates, which in turn impact employment levels.

Business Confidence: When businesses are confident about the future economic outlook, they are more likely to hire new employees. Positive consumer sentiment also encourages spending, prompting businesses to expand and hire more workers.

Global Economic Factors: The global economic climate, including trade relations and geopolitical events, can impact job growth. Uncertainties in international markets can lead to cautious hiring by U.S. companies.

Trading Strategies Around NFP:

Volatility Management: Due to the heightened volatility during NFP releases, traders often use risk management strategies such as setting stop-loss and take-profit orders to protect their investments from rapid market movements.

Analysing Previous Trends: Traders analyse previous NFP reports and market reactions to anticipate how the current release might affect various assets. Historical data can provide valuable insights into market behaviour.

Diversification: Traders might diversify their portfolios to spread the risk during periods of high volatility. Diversification can involve trading different assets or using various trading strategies.

Stay Updated: Staying informed about other economic indicators and global events is essential. Factors such as GDP growth, inflation rates, and geopolitical developments can influence market reactions to NFP data.

In conclusion, NFP is a crucial economic indicator that provides valuable insights into the U.S. job market and overall economic health. Its impact on financial markets and trading strategies underscores the significance of this report for investors and traders worldwide. Understanding NFP data and its implications is essential for making informed investment decisions and navigating the complexities of the global economy.

How can I trade during NFP?

GO Markets provides a comprehensive range of trading options and resources for investors. When traders are preparing for the release of economic indicators such as NFP, having access to a reliable trading platform is essential. GO offers a diverse selection of trading instruments, including Forex, commodities, indices, and more, allowing traders to capitalise on market movements efficiently. The platform’s educational resources and market analysis tools empower traders to make informed decisions and navigate the complexities of the financial markets with confidence.

In the context of NFP trading strategies, traders can leverage the features provided by GO Markets to manage their trades effectively. Utilising risk management tools, such as setting stop-loss and take-profit orders, can help traders mitigate potential losses and secure their profits during periods of high market volatility, such as NFP releases.

Does GO Markets allow trading during NFP?

GO Markets permits trading during NFP announcements. Traders are free to engage in trading activities regardless of news releases or market volatility. However, GO Markets advises traders to exercise caution and implement a robust risk management strategy, especially during significant events such as the NFP.

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Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice. If the advice relates to acquiring a particular financial product, you should obtain and consider the Product Disclosure Statement (PDS) and Financial Services Guide (FSG) for that product before making any decisions.