The monthly non-farm payroll report from the Labor Department can have a substantial impact on forex markets when the numbers are released on the first Friday morning of a new month. That's because traders are always monitoring indicators to identify trends in economic growth, and some of the most-watched economic indicators include inflation, housing starts, gross domestic product, and the monthly payroll report, which contains a variety of data and statistics regarding the employment situation in the United States.

Understanding Non-Farm Payrolls

The U.S. Department of Labor's Bureau of Labor Statistics releases the monthly jobs report on the first Friday of a new month (with some exceptions due to holidays), and the report covers the relevant employment statistics from the previous month. For example, numbers that are released on the first Friday in February will include data for the month of January. The report contains key information on unemployment, job growth, and payrolls.

Key Takeaways

  • The monthly jobs report from the Labor Department can have a notable impact on the forex market because traders are always monitoring economic data for signs of strength or weakness.
  • The numbers are released on the first Friday of the new month and capture employment trends from the month before.
  • While the headline payroll number is considered to be the most important, traders also look at other data in the report, such as the unemployment rate, changes in wages, and any revisions to past reports.
  • The forex market will likely see a notable reaction when the payroll report deviates substantially from economists' expectations.

The non-farm payroll data included in the jobs report typically has the most market impact. The number is often included in news headlines and represents the total monthly increase or decrease in paid U.S. workers of any business (excluding general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals, and farm employees).

Non-farm payroll data is analyzed closely because of its importance in identifying trends related to the rate of economic growth and inflation. If non-farm payrolls are expanding, the increase is an indication that the economy is growing. However, if increases in non-farm payroll occur at a fast rate, this may lead to an increase in inflation and that may be viewed as a negative for the economy. Data on wage growth and the rate of unemployed, which are also included in the monthly jobs report, will also help shape inflation expectations and estimates for future economic growth.

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What Does Nonfarm Payroll Mean?

Expectations vs. Reality

As with many other economic indicators, the difference between the actual non-farm data and the figures expected by economists will often determine the overall market impact. If there are any major surprises or disappointments, which deviate from expectations, the forex market will likely react to the new reality by adjusting prices and exchange rates.

If, for example, non-farm payroll growth is lower than economists' estimates, forex traders might be motivated to sell U.S. dollars in anticipation of a weakening currency amid concerns that economic growth is not as robust as previously thought. The opposite is true when the data is stronger than economists' expectations. That is, a strong report can sometimes motivate traders to buy U.S. dollars on expectations that economic growth in the United States is improving.