What is the ‘Nonfarm Payroll’?
Nonfarm payroll is a monthly report generated and reported by the U.S. Bureau of Labor Statistics intended to represent the total number of paid U.S. workers of any business. Despite the name nonfarm payroll, the report excludes workers from general government jobs, private household jobs, employees of nonprofit organizations and farm employees.
BREAKING DOWN ‘Nonfarm Payroll’
The nonfarm payroll statistic is reported monthly, on the first Friday of the month, and is used to assist government 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.
Text Source: investopedia.com
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