Preface
Nonfarm Payrolls is one of the most important employment data in the United States. Employment data is a general economic indicator that the market is very concerned about, because the number of employees greatly affects the economic development of a country. From this article, we will take you to understand everything about the Nonfarm Payrolls employment data quickly!
What is Nonfarm Payrolls?
Nonfarm Payrolls, is the U.S. employment data excluding farm employment, private employees, NGO workers, etc. Nonfarm payrolls data are compiled by the U.S. Bureau of Labor Statistics and are announced at 8:30 pm on the first Friday of each month in daylight saving time, and 9.30 pm on the first Friday of each month in standard time. Nonfarm employment represents more than 90% of the employed population in the United States, and the survey sample covers 30% of the maternal population, so it is a very accurate survey. The total output of the nonfarm department accounts for more than 80% of the total output of the United States, so it is a very important economic data.
Nonfarm Payrolls impact
The stability of the employment environment is one of the important errands of the FED, and the survey covers a wide range of nonfarm industries, which is naturally one of the key indicators of the FED when formulating monetary policy. Unlike the unemployment rate, which is a lagging indicator of the economy, nonfarm employment is a simultaneous indicator of the overall economy. Therefore, the quality of nonfarm payrolls data will greatly affect the future direction of the economy.
When the nonfarm employment population increases steadily, which is represented a sufficient labor force, while the demand for services and commodities increases, therefore the future prosperity will tend to be upward; when the nonfarm employment population is unstable, it means that there is doubt about the future economic recession. In addition, nonfarm data is the first important general economic data released on every month and can be used as a leading indicator for other data. Therefore, this data is a very important indicator to observe the economic dimension and financial activities.
Furthermore, the another very important key is the difference between the expected value and the actual value. When the gap between the two is huge, it means that the economy still has huge development potential. On the contrary, the economic recession is faster than we expected.
Next, we will explain the impact of nonfarm payrolls.
The impact of nonfarm payrolls on the economy
When nonfarm employment declines, it means that U.S. productivity will decline in the future, on the other hand, it may also mean that business owners believe that, the overall environment is likely to decline next, so they might reduce employees. No matter what the reason is, it will cause a recession in the United States. On the contrary, when the nonfarm payrolls inclines, both of the productivity increases and optimistic expectations for the future might have a positive impact on the U.S. economy. Coupled with the increase in employment also means an inclines in overall household income, and the increase in income will be passed on to consumption expenditures. Above all, as a country with a large domestic demand, the nonfarm data are closely related to the consumption.
Second, we can also interpret the current possible environment of each industry from the part of employment details. As mentioned above, nonfarm data includes employment data for various industries At this time, we can infer what problems may occur in these industries based on these data.
For examples, it is possible that the overall nonfarm payrolls rose in the month, but the private sector fell. This may be caused by the government’s large-scale hiring of temporary workers, so the impact on economic growth will not be long-lasting. Or, the transportation and logistics are related to the smoothness of the supply chain, and durable goods symbolizes the investment of manufacturers in the future, etc., which are of great help in observing economic changes.
Lastly, the nonfarm employment data includes employment status of various identities, such as race, age, gender, etc. Hence, you can check which section of the employment has problems through nonfarm employment.
The impact of nonfarm payrolls on the dollar
The impact of nonfarm data on the US dollar mainly has two aspects, one is monetary policy, while the other is economic. When the nonfarm data improves, which means that the employment environment in the United States has improved. When the employment situation returns to a certain level, the FED will customize the monetary policy according to the situation.
However, if the monetary policy is tightened, the widening of interest rate spreads will allow capital to flow into the United States from countries with lower interest rates, and boost the appreciation of the dollar. On the contrary, when the nonfarm data is not good, the loose monetary policy will boost the depreciation of the dollar.
At the dimension of the economic, the growth of nonfarm employment means that the economy of the United States has strengthened. As a result, capital will flow into the United States relatively, and push up the dollar. Otherwise, the dollar will depreciate. In fact, both of them affect the strength of the dollar from the nonfarm data that affects the amount of capital inflows, but they are explained separately because of the different transmission channels.
The impact of nonfarm payrolls on the stocks
When the U.S. nonfarm payrolls data inclines, representing the industry and commerce, which mainly affect the performance of the US economy, are gradually improving, while the unemployment rate will drop, and the people’s willingness to spend will increase. Then the US economy will recover, and the performance of US stocks will go up.
On the contrary, when the US nonfarm employment data decreases, it means that the main impact of the US economic performance may slow down or turn to recession, while the rise in unemployment will lead to a decline in people’s spending willingness, and then the US economy will decline. Therefore, the performance of US stocks will show a downward trend. As a result, the performance of US stocks will show a downward trend.
The impact of nonfarm payrolls on the foreign exchange market
However, the US nonfarm payrolls data is also one of the economic data that the foreign exchange market must pay attention to every month. Because if the number of new nonfarm payrolls increases and the unemployment rate falls, it will reflect that both the production and consumption conditions of the US economy are growing. At the same time, Fed may raise interest rates with reference to this data, making it easy for the market to boost the appreciation of the dollar.
On the contrary, the decrease of the new nonfarm payrolls and the rise in the unemployment rate reflect the weakening of the U.S. labor market, as well as the weakening of consumption, which is unfavorable for the overall economic development then the Fed may cut interest rates, then might affect the depreciation of the dollar easily.
The impact of nonfarm payrolls on the commodities
Gold prices tend to fall when nonfarm payrolls are great, and gold prices tend to rise when nonfarm payrolls are weak. But why does this happen? This is because the nonfarm data has a great impact on the value of the US dollar. If the nonfarm data has a good performance, which means that the employment in the United States is good, and the attractiveness of the US dollar to foreign investors will greatly increase, then a large amount of funds will flow into the US dollar market. Hence, there will be less funds flowing into the gold market. And vice versa.
In conclusion
When the US economy is in a downturn, nonfarm payrolls are on a downward trend.
1. If the actual value is greater than the expected value, it means that the U.S. economy is more sluggish than market expectations, the U.S. dollar index will decline in the short term, then the gold price will incline.
2. When the actual value matches the expected value, the dollar index declines and the gold price inclines.
3. When the actual value is less than the expected value, it means that the current US economy is not as bad as expected, so the US dollar index will incline in the short term and the gold price will decline.
When the U.S. economy is growing, nonfarm payrolls are in an upward trend.
1. When the actual value is greater than the expected value, it means that the economic growth rate is faster than expected, the dollar index inclines rapidly in the short term, then the price of gold declines rapidly.
2. When the actual value matches the expected value, the dollar index inclines and the gold price declines.
3. When the actual value is less than the expected value, it means that the economic growth is not as expected, the dollar index declines short-term, and the gold price inclines.
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