What is 'Nonfarm Payroll'

Nonfarm payroll is a term used in the U.S. to refer to any job with the exception of farm work, unincorporated self-employment, and employment by private households, non-profit organizations, and the military and intelligence agencies. Proprietors are also excluded. The U.S. Bureau of Labor Statistics releases closely followed monthly data on nonfarm payrolls as part of its Employment Situation Report. The headline figure, the change in the total number of nonfarm payrolls compared to the previous month, is used as a gauge of economic health. 

In January 2018, preliminary data for the prior month of December 2017 showed that nonfarm payrolls rose by 148,000, on a seasonally adjusted basis, to 148.3 million. The change marked 87 straight months of job growth since October 2010. Nonfarm payrolls rose by 252,000 in November 2017 (also preliminary) and 155,000 in December 2016.

BREAKING DOWN 'Nonfarm Payroll'

Nonfarm payrolls are reported on the first Friday of the following month, with occasional exceptions, at 8:30 a.m. The data are used to assist policymakers and economists with determining the current state of the economy and predicting future levels of economic activity.

Why the Nonfarm Payroll Report Matters

The major statistic reported from the nonfarm payroll report is the number of additional jobs added from the previous month. The report also contains many valuable insights into the labor force that have a direct impact on the stock market, the value of the U.S. dollar and the price of gold. The nonfarm payroll report is a major tool used to determine the overall health of the economy. The total nonfarm payroll accounts for approximately 80% of the workers who produce the entire gross domestic product (GDP) of the United States.

The nonfarm payroll report shows statistics of unemployment for the U.S workforce. This is communicated through an overall unemployment rate, a long term unemployment rate and a youth unemployment rate. The labor force participation rate is also a key statistic used to determine the true unemployment rate of the country.

What the Nonfarm Payroll Reports

Statistics from the nonfarm payroll also show which sectors are generating the most employment additions. The report shows large gains and losses among the sectors. The list of sectors from the report include professional and business services, health care, financial activities, mining, construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, and leisure and hospitality. This breakdown by sector is often used by stock analysts to predict which stocks and sectors have strong earnings reports.

The report also contains additional items such as the average work week and average hourly earnings. Wage growth is communicated with the report. Each month’s report may include revisions to previous reports.

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 additional jobs. The year 1994 was the best on record with 3.85 million added jobs. That year saw gains reported in every monthly nonfarm payroll report. In 2009, the job force lost 5.05 million jobs, marking the worst statistical year for the nonfarm payroll. Meanwhile, in 2017, payroll employment growth totaled 2.1 million, compared with a gain of 2.2 million in 2016.

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