Forex Market Implications of the Non Farm Payrolls Data

The Non Farm Payrolls or NFP fundamental economic indicator released in the United States has a well deserved reputation as being one of the most focused on pieces of information used by forex traders.

Both the key data’s initial release and any subsequent revisions can often result in substantial exchange rate swings.

Furthermore, the most recent Non Farm Payrolls number is often used by fundamental forex traders and economists alike to determine the health of the employment sector of a country’s economy.

The influential data is also considered a leading economic indicator since an improvement in employment will often precede an economic upturn in a country since employed people tend to consume more than the unemployed.

What the Non Farm Payrolls Indicator is and What it Measures

The Non Farm Payrolls indicator measures the net change in the number of people employed within the U.S. economy in jobs other than those which are farming or agriculture related.

Specifically, these jobs counted include those from the manufacturing, construction and goods producing economic sectors. Farm related jobs are excluded from the NFP data since the economy’s agricultural employment sector is seasonally affected by increased hiring during harvest times which tends to distort the employment data.

The changes seen in the NFP number can have a significant effect on the U.S. economy. On the one hand, when the NFP data is rising, it means businesses within the United States are hiring more staff, usually in response to improved economic conditions and increased demand for their products or services either domestically or overseas.

On the other hand, when the NFP data is falling, it means that employers within the United States are letting more staff go, usually in response to poorer economic conditions and reduced demand for their products or services in either the domestic or overseas markets.

Furthermore, growth in the number of employed people in an economy tends to boost that economy since employed people tend to spend more and hence stimulate the economy, which in turn tends to create even more jobs. This contrasts with unemployed people whose spending patterns tend to contract.

The Non Farm Payrolls Release Calendar

In the United States, the highly influential Non Farm Payrolls data is usually expressed on a monthly basis in terms of the number of people added or subtracted from those employed in non farm related jobs.

The initial value for the key indicator is typically released on the first Friday of each month – along with any revision to the previous month’s data and the U.S. Unemployment Rate – by the Bureau of Labor Statistics of the U.S. Department of Labor.

When released, the NFP data covers the net number of non farm jobs added or subtracted during the previous month.

Impact of the Non Farm Payrolls Data

The Non Farm Payrolls data has a top tier reputation as one of the most closely watched of all of the key fundamental indicators relevant to the important U.S. economy by forex traders.

Basically, the Non Farm Payrolls indicator provides economists and traders with one of the most important pieces of information with which to gauge if the U.S. job sector is growing healthily or contracting in a less favorable employment environment.

Higher than expected NFP numbers tend to raise the valuation of the U.S. Dollar relative to the currencies of other countries, while lower than expected NFP data tends to lower the U.S. Dollar’s relative valuation.

Both the NFP data’s initial release and any subsequent revisions can cause significant financial market activity and large exchange rate fluctuations in currency pairs that involve the U.S. Dollar.

Furthermore, in addition to the NFP data resulting in large exchange rate movements in currency pairs that involve the U.S. Dollar, the indicator can also significantly influence U.S. stock market valuations and bond prices.

Like many other economists, the economists making monetary policy decisions for the U.S. Federal Reserve Bank often uses the level of the Non Farm Payrolls indicator to assess the strength of the employment sector in the United States since it can be a useful leading indicator of future economic strength or weakness.

As a result, the level of the NFP number can have a significant impact on U.S. interest rate shift decisions made by the Fed’s FOMC.

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