Nonfarm Payroll: Definition, How It Works, and Why It's Important

What Are Nonfarm Payrolls?

Nonfarm payrolls is the measure of the number of workers in the U.S. excluding farm workers and workers in a handful of other job classifications. This is measured by the Bureau of Labor Statistics (BLS), which surveys private and government entities throughout the U.S. about their payrolls. The BLS reports the nonfarm payroll numbers to the public on a monthly basis through the closely followed “Employment Situation” report.

In addition to farm workers, nonfarm payrolls data also excludes some government workers, private households, proprietors, and non-profit employees.

Key Takeaways

  • Nonfarm payrolls is the measure of the number of workers in the U.S. excluding farm workers and workers in a handful of other job classifications.
  • The nonfarm payrolls classification excludes farm workers as well as some government workers, private households, proprietors, and non-profit employees.
  • The data on nonfarm payrolls is collected by the Bureau of Labor Statistics (BLS) and put in its monthly "Employment Situation" report, which also includes the unemployment rate.

Understanding Nonfarm Payrolls

While the name nonfarm payrolls insinuates that farm workers be excluded from the statistic, there are also several other categories that the BLS does not count when compiling nonfarm payrolls data. According to the BLS, nonfarm employee classifications account for approximately 80% of U.S. business sectors contributing to gross domestic product (GDP). While this represents a significant majority of the U.S. labor force there are some notable exclusions in addition to farm workers:

  • Government workers: Government is a key part of the “Employment Situation” report each month but there are some government workers who are excluded. The government category covers civilian employees. However, it excludes military employees and employees of government-appointed officials. Employees of the Central Intelligence Agency, National Security Agency, National Imagery and Mapping Agency, and the Defense Intelligence Agency are also excluded.
  • Private households: Private household employees and domestic household workers are excluded.
  • Proprietors: Proprietors are generally unincorporated business owners. This includes sole proprietors and self-employed workers that operate without a registered business incorporation (e.g., without limited liability corporation or partnership status).
  • Non-profit employees: Though quite large, the non-profit sector is not included for consideration in the nonfarm payroll statistics.

Analyzing the Monthly Report

The “Employment Situation” report is a closely followed monthly report released by the BLS on the first Friday of the month subsequent to data reporting collection. The BLS’s “Employment Situation” report is always released at approximately 8:30 a.m.

The monthly “Employment Situation” report is created from two comprehensive surveys: the Household Survey and the Establishment Survey. This results in two separate reports compiled together to form one comprehensive monthly report. The Household Survey provides the unemployment rate report as well as details on employment demographics. The Establishment Survey segment of the BLS’s “Employment Situation” report is also known as the nonfarm payrolls report, providing the headline number of new nonfarm payroll jobs added within the national economy.

Household Survey

Key components of the Household Survey include:

  • The unemployment rate
  • Unemployment rates by gender
  • Unemployment rates by race
  • Unemployment rates by education
  • Unemployment rates by age
  • Reasons for unemployment
  • Employment data by types of alternative employment
  • The participation rate

Establishment Survey

The Establishment Survey portion of the “Employment Situation” report provides details on nonfarm payroll additions and can be known as the nonfarm payrolls report. Key components of the Establishment Survey include:

  • The number of total nonfarm payrolls added by entities for the reporting month
  • Nonfarm payroll additions by industry category: durable goods, non-durable goods, services, and government
  • Details on hours worked
  • Details on average hourly earnings

Economic Analysis

The nonfarm payrolls number and the unemployment rate are headlines of the “Employment Situation” report but economists and policymakers use all of the available data for assessing the current state of the economy and forecasting future levels of economic activity. The report contains many valuable insights into the labor force that have a direct impact on the economy as well as the stock market, the value of the U.S. dollar, the value of Treasuries, and the price of gold.

Economists analyze the Household Survey data when considering the trend in the unemployment rate, participation rate, and other trends that may be associated with demographics. The Establishment Survey/nonfarm payrolls report offers valuable information on sectors with detailed sector segregation. Several types of analysts may incorporate sector-specific nonfarm payroll data into their analysis. This breakdown can often be used by stock analysts reporting on stock sectors and earnings releases.

Nonfarm payroll statistics also show which sectors are expanding and contracting. Expanding sectors will contribute a higher number of new payrolls and contracting sectors may have low or negative contributions showing a reduction in job availability.

Wages and wage growth found in the Establishment Survey are also of high importance to economists. Historically, the best month for wage growth is usually May, with an average of 129,000 additional jobs. August is the worst month, with an average of 69,000 added jobs. For nonfarm payrolls, the year 1994 was the best on record with 3.85 million jobs added. In 2009, the job force lost 5.05 million jobs, marking the worst statistical year for the nonfarm payroll count. In 2018, payroll employment growth totaled 2.6 million compared to additions of 2.2 million in 2017 and 2.2 million in 2016.

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