The Non-Farm Payroll employment statistics reflect employment data for construction, manufacturing, goods and service companies in the United States. The NFP data does not include farm workers, private household employees or non-profit organization employees.
When and how often is the NFP data released?
The NFP data is usually released on the first Friday of the month. The figure represents the change in nonfarm payrolls from the previous month, jobs added or lost in the economy.
How does this data affect the economy and financial markets?
Simply put, more jobs means more people with more money to purchase more goods and services, which increases growth. Fewer jobs mean less people with money to purchase goods and services. Some not so obvious correlations are between this data and its implications for the financial markets. Included in the NFP data is the unemployment rate in the economy, represented as a percentage of the overall work force. Needless to say, this is a good indicator of economic health, but the Fed watches it closely, because it can be tied to currency inflation, and here’s how:
When unemployment becomes low (usually below 5%), inflation is expected to increase as businesses have to pay more money to hire good workers. As a result, prices of goods and services go up as well to compensate. As prices rise, workers will likely require higher wages to maintain their standard of living. This is known as the price/wage spiral, which represents the vicious circle process in which wages and prices reinforce themselves in a negative way through a positive feedback loop.
The NFP data also includes the jobs sectors in which the job increase or decrease is experienced, and provides foresight as to which areas of the economy may be primed for growth. Average hourly earnings are important as well. If more people are working, but the average earning are less, then it’s implications the same as when jobs are subtracted from the workforce. In contrast, when average hourly earnings rise, its implications are the same as when jobs are added to the workforce.
How does the NFP data affect mortgage interest rates?
Positive NFP data can potentially have a positive impact on the stock market. As a result, people may move money from bonds to stocks. The bond market therefore has less available funds, causing an increase in the interest rates. Keep in mind that there are numerous factors that interact and affect the markets. Mortgage rates are affected by an aggregate of numerous market indicators, and no sole indicator can be held fully responsible for market movement.