Non-Farm Payroll
The Non-Farm Payroll (NFP) is a percentage that
denotes the well-being of an economy through the strength of its
labor market.
Of all economic indicators, employment figures are widely
recognized as among the most important. The Non-Farm Payroll is a
section of the larger US Employment or Labor Report; which includes
Payroll Employment, Unemployment, and Average Hourly Earnings
Growth. NFP shows the employment rate for non-agricultural
industries, breaking down data into sections for employee, women,
and production or non-supervisory positions. The information is
compiled by the Current Employment Statistics Program, which takes a
survey of a sample of businesses to arrive at the data used in the
Labor Report. The data is fresh each month and approximately 400,000
businesses are used in the survey, spanning 810 industries.
Fundamental Analysis of the NFP
Although it may seem counterintuitive to analyze such a
small section of the Employment Report when other figures -
particularly Unemployment Rate with its widely proclaimed
socioeconomic implications - seem to have a tighter grip on the
economic situation, analysis of the NFP is well worth the
time.
An increasing trend in NFP indicates a strong economy.
A decreasing NFP is a sign of looming unemployment and thus
a weaker economy.
The NFP is an indicator of labor market strength. If the
economy is in a downturn and employment is hard to come by, the NFP
will be lower. The unemployment figures are not observed as
closely by most investors since the manner in which unemployment
is calculated makes it more of a lagging indicator of changes in
employment. Why look at a delayed re-hash of the NFP's ramifications
in the Unemployment figures when you could just look straight at the
NFP?
As the NFP technically measure the change in the number of
workers for a given month, it is best to observe it on a 6 to 9
month moving average to take in any consequential trends.
NFP and the Labor Report are part of the Current Employment
Statistics Survey conducted by the U.S. Department of Labor. Numbers are released by the Bureau of Economic Analysis on a
month basis on the 1st Friday of the month at 8:30 am EST.
