You’ve probably already heard of important economic indicators like GDP, jobs, consumption, and inflation rates. Another key indicator that can make your trading and investing life more accessible is the non-farm payrolls report. In this article, you’ll learn what non-farm payroll reports are, what to look for, and how you can best benefit from reading them.
What Is a Non-farm Payrolls Report?
Non-farm payrolls (NFP) are one of the critical economic metrics used to measure the monthly changes in employment in the United States. It is followed closely by economists, investors, and policymakers as one of the leading predictors of the strength of the US labor market and the overall economy. The non-farm payrolls do not account for private household employees.
The NFP report covers the total number of jobs added or lost in the economy, the current unemployment rate, and the average hourly wage of employees. Because the employment rate goes hand-in-hand with consumer spending, one of the primary drivers of economic growth, the report is an excellent marker of the overall health of the US economy.
Since employment trends can impact interest rates, stock prices, and the US dollar value, many investors pay close attention to the NFP report.
- A strong NFP report, with greater-than-expected job growth and a low unemployment rate, might be a sign of a healthy, growing economy, which in turn can be seen as a positive signal for the stock market and may lead to higher interest rates.
- A weak NFP report, with low job growth and high unemployment, can point to an economic slump and result in lower interest rates.
What Are the Key Points Every Investor Should Know About Non-farm Payrolls?
Understanding non-farm payrolls (NFP) and their impact on the economy and financial markets is essential to anyone interested in trading or investing. Below we’ve compiled six key points we believe investors should consider regarding the non-farm payrolls report:
Market impact
The NFP report can significantly impact financial markets, including stock, bond, and trading on the Forex market. A better-than-expected NFP report can boost investor confidence and lead to an increase in stock prices. In contrast, a weak report can have the opposite effect.
Economic indicator
The NFP is a key indicator of the health of the US economy and the jobs market. A strong NFP report indicates that the economy can create jobs and that people are finding employment. In contrast, a weaker report can indicate a slowdown in job growth.
Fed policy
The Federal Reserve pays close attention to NFP and other economic indicators to determine its monetary policy. A strong NFP report can lead the Fed to tighten monetary policy, resulting in higher interest rates and a stronger currency. In contrast, a weaker report can lead to loosening monetary policy.
Inflationary pressures
The NFP report provides information on wage growth, which can indicate inflationary pressures. Higher wage growth can lead to higher inflation. It can impact the value of fixed-income investments and result in a more cautious approach by the Fed.
Timing
The NFP is released on the first Friday of every month and is typically one of the most closely watched economic indicators, so it is essential for investors to be aware of the release date and time and to be prepared for potential market moves.
Consistency
Investors need to consider the trend in NFP numbers over time rather than just focusing on a single report. Consistent job growth over several months is a positive sign for the economy and financial markets. A consistently weak NFP report can indicate a slowdown.
How NFP Reports Impact Market Sentiment and Investment Decisions
The non-farm payroll report can have a significant impact on the way investors go about their day-to-day. The report can also provide a comprehensive understanding of the economic situation in the country. It is because the employment data released through the report is directly related to many fundamental sectors. It includes real estate, retail, and consumption.
How Does Non-farm Payrolls Report Impact Interest Rates?
The Federal Reserve uses NFP data as a critical indicator in deciding how to adjust interest rates. And so a strong NFP report that exceeds expectations on job gains and shows low unemployment points to a healthy, growing economy and can lead to higher interest rates, which impact the stock market, the value of the US dollar, and ultimately, the investor’s decision-making.
How Does Non-farm Payrolls Report Impact the Stock Market?
A strong NFP report can impact the stock market. If the economy grows, it may boost investor confidence leading to higher stock prices. Conversely, a weak NFP report can decrease investor confidence and lower stock prices.
How Does Non-farm Payrolls Report Impact the Bond Market?
Another example of a market influenced by NFP data is the bond market. Higher-than-expected job growth and low unemployment may cause interest rates to climb and bond prices to fall. In contrast, weak employment growth and high unemployment may cause interest rates to fall, leading to a rise in bond prices.
How Does Non-farm Payrolls Report Impact the Real Estate Market?
The non-farm payrolls report impacts every sector, including the real estate market, and can impact the housing market. A strong NFP report may boost investor confidence, spur housing demand, and raise home prices. A weaker NFP report may suggest a weaker economy and decrease investor confidence, reducing housing demand and lowering home prices.
How Does Non-farm Payrolls Report Impact Cryptocurrencies?
NFP Reports may also have an indirect impact on cryptocurrencies. The relationship is only sometimes evident and predictable. Still, considering its overall influence on the economy, it’s safe to consider it an indicator of the cryptocurrency market’s health.
- The NFP report has an impact on the value of the US dollar. A strong NFP report can prompt the Federal Reserve (Fed) to tighten monetary policy and raise interest rates. It may also increase the US dollar’s value. On the other hand, a weak NFP report may cause the Fed to loosen monetary policy and lower interest rates, thus reducing the value of the US dollar.
- Since the NFP data provides insight into the overall economic outlook, it can also impact the cryptocurrency market. A strong NFP report with solid job growth and a low unemployment rate that points to a strong economy can improve market sentiment and boost demand for cryptocurrencies. That said, a weak NFP report that points to a weak economy may decrease that demand.
- NFP data can also impact investors’ risk appetite, influencing the cryptocurrency market, which is still considered new and relatively risky by most experts. However, a strong NFP report pointing to a booming economy can increase investors’ risk appetite and demand for cryptocurrencies.
Please keep in mind that the cryptocurrency market, similar to other markets, is influenced by various drivers. It includes changes in regulation, technological developments, and market sentiment. NFP data should be treated as just one of many factors that can impact the cryptocurrency market.
Non-farm Payrolls: Key Takeaways
The NFP report is one of the most sought-after predictors for the US jobs report. It significantly impacts the economy through its direct ties to its other parts, such as interest rates, consumption, and market sentiment.
However, it is just one of many indicators of economic health. Investors should consider other elements and indicators outside the economic bubble to get a complete picture. For example, investors should consider political relations and tensions between countries when making investment decisions.
It’s also always important to consider a long-term investment strategy and diversify your portfolio to minimize risk. Consider using the SimpleFX trading app, which allows you to trade anything from precious metals and Forex to cryptocurrencies. All of it anonymously and in one place.
