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Recent data shows that the US non-farm payroll employment in August exceeded expectations, with an increase of 187,000, compared to the anticipated 170,000. However, the July figure for new non-farm payroll employment was significantly revised downward from 187,000 to 157,000. Simultaneously, the unemployment rate unexpectedly rose from 3.5% to 3.8%, while the expectation was for it to remain unchanged.

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"Non-farm" refers to the non-farm payroll data released by the U.S. Department of Labor, also known as the "U.S. Non-Farm Payrolls Report." It is commonly abbreviated as NFP in English. This report is typically published by the Bureau of Labor Statistics (BLS) and is closely followed by economists, market analysts, and traders.

 

The Non-Farm Payrolls report can have a significant impact on financial markets. A strong employment report can lead to an increase in stock prices as investors gain confidence in the direction of the economy. Conversely, a weak employment report can have the opposite effect, as investors start to worry about the health of the economy.

 

The Non-Farm Payrolls report is just one of many economic indicators that investors can use to gauge economic strength. However, it is often closely watched by market participants because it provides a monthly snapshot of the health of the U.S. economy.

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What is Non-Farm Payroll Data?

Non-farm employment is a key economic indicator that measures the number of employed people in the United States, excluding farm workers and some other categories of workers, including certain government employees, private household employees, and nonprofit organization workers.

 

The Non-Farm Payrolls report, also known as the Employment Situation report, focuses on the changes in employment opportunities in the previous month. The data released each month allows investors to understand the state of the labor market and the overall health of the economy.

 

Explanation of U.S. Non-Farm Payrolls Report

The Non-Farm Payrolls report is one of two surveys conducted by the Bureau of Labor Statistics that track employment in the United States. These two surveys are:

 

• Establishment Survey: This survey provides detailed information on non-farm employment, tracking the number of new jobs added by industry, average work hours, and average hourly earnings. This survey forms the basis for the monthly reported total non-farm employment figure.

• Household Survey: This survey breaks down employment figures by demographic characteristics, studying employment rates by race, gender, education level, and age. This survey forms the basis for the monthly reported unemployment rate.

 

When is the NFP Released?

The Bureau of Labor Statistics typically releases the Non-Farm Payrolls report on the first Friday of each month at 8:30 am Eastern Time. The Bureau combines the establishment survey and the household survey to release the Employment Situation report, which covers the labor market of the previous month.

 

How Does Nonfarm Payroll Data Affect Markets?

Nonfarm payroll data can affect the market in various ways, depending on the state of the economy and financial markets.

 

Nonfarm Payroll Data and Stock Prices

If nonfarm payroll numbers are unexpectedly high or low, it can provide insight into the future direction of the economy. A strong employment report may indicate an improving economy, with increased company profits leading to rising stock prices. Conversely, a weak employment report may indicate a slowing economy, with decreasing company profits leading investors to sell positions and causing stock prices to fall.

 

Nonfarm Payroll Data and Interest Rates

Additionally, nonfarm payroll data can also affect stock prices by influencing the interest rate environment. A strong employment report may lead the Federal Reserve to raise interest rates to prevent an overheating labor market or curb inflation, causing stock prices to fall. Conversely, a weak employment report may lead the Federal Reserve to maintain or even lower interest rates, creating a loose monetary policy environment and boosting stock prices.

 

Investors formulate strategies based on their views on future market performance, so they attempt to incorporate their predictions of nonfarm payroll data into the prices of various types of investments. However, unexpected employment reports can prompt them to change their strategies. Surprising data can potentially cause significant market volatility in key areas such as stocks, bonds, gold, and the US dollar, depending on the data released each month.

 

 

How to Trade

While long-term investors typically don't need to pay attention to any single employment report, more active investors may want to adjust their strategies based on new data about the economy. If you belong to the latter camp, you'll typically want to make sure that report is one factor you consider, but not the only one.

 

You'll need to look at other economic statistics as well as the technical and fundamental profiles of the individual securities you plan to buy or sell. Then, you'll need to formulate a strategy and execute based on your research, your expectations for the employment report, and whether you think it portends a bull or bear market.

 

The financial assets most affected by nonfarm payroll (NFP) data include the US dollar, stock markets, and gold. Before NFP data is released, market reactions are very swift and often highly volatile. Short-term market trends suggest a strong correlation between NFP data and a strengthening US dollar.

 

In forex trading, the market places a great deal of importance on the comparison between actual nonfarm payroll numbers and expectations. If the actual data is lower than the median expectation of economists, investors will typically sell the US dollar. The opposite is true when the data is higher than economists' expectations.

 

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While the market may fluctuate following the release of the nonfarm payroll report, long-term investors don't need to change their investment portfolio after every new government data release. That being said, active investors may use the employment report as one factor in formulating their investment strategies.

 

Whatever your strategy, a good way to build and maintain a financial investment portfolio is to use Headline's trading account, where you can trade forex, gold, and cryptocurrencies. You can start trading with just 10 U in initial capital.

 

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