Traders are constantly monitoring various economic indicators to identify trends in economic growth. Some of the most watched economic indicators include the Consumer Price Index, housing starts, gross domestic product and the Non-Farm Payrolls (NFP) employment report. Out of these indicators, the (NFP) employment report contains a variety of data and statistics regarding the employment information of the market. The (NFP) employment report is released on the first Friday of every month by the Bureau of Labor Statistics, providing data covering the previous month.
A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to represent the total number of paid U.S. workers of any business, excluding the following employees: general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals and farm employees
This monthly report also includes estimates on the average work week and the average weekly earnings of all non-farm employees. A classic example how the forex market is moved can be found in the non-farm payroll (NFP) numbers published each month by the US government. The (NFP) number is a seasonally-adjusted estimate of the number of non-farm jobs that were added (or lost) during the previous month. They are more reliable than the weekly jobs numbers for a variety of technical reasons that aren't important to us here. There are several other ways of estimating changes in employment levels, but the monthly (NFP) numbers are seen as by far the most reliable.
From a basic economic sense, when the (NFP) shows an increase in jobs it means the economy is doing well. An increase in employment means that companies are growing, and a secondary benefit is that the newly hired workers will have more money to spend on goods and services. A decrease means that the opposite is true. (NFP) and the overall job market have become key indicators for traders and that is reflected in the market’s sensitivity to the non-farm payroll report. The report includes the unemployment rate, what sectors have increased or decreased their workforce and what the average hourly earnings are.
If the non-farm payroll is expanding, this is a good indication that the economy is growing, and vice versa. However, if increases in non-farm payroll occur at a fast rate, this may lead to an increase in inflation. In forex, the level of actual non-farm payroll compared to payroll estimates is taken very seriously. If the actual data comes in lower than economists' estimates, forex traders will usually sell U.S. dollars in anticipation of a weakening currency. The opposite is true when the data is higher than economists' expectations.