What Is NFP And Why Is It Widely Watched By Investors
The Nonfarm Payrolls (NFP) are among the biggest market movers in the Forex markets, together with central bank events or interest rate decisions. Although their impact seems to be decreasing over the last few months.
At the first Friday of every month, the U.S. Bureau of Labor Statistics releases the numbers for new job creation in the US – along with other labor market data. The data includes all paid workers, excluding government employees, private households, non-profit organisations and the farming industry.
It’s an important indicator for how well the US economy is doing and investors watch this report closely. Surprises and major changes in the released numbers can lead to significant price movements. In this article, we show you why it’s so important to understand the implications of this release, how to interpret the numbers and how to trade NFP in general.
There are three parts and news releases for each NFP day:
1) The NFP numbers: how many new jobs have been created/lost
2) The unemployment rate: the overall unemployment rate
3) The hourly wages: how much workers are earning on average
The NFP provides information about the US labor market, how well the economy is doing and what the future holds: if the economy is not doing so well, companies don’t hire as many new people and might even fire some of their employees. Subsequently, those people lose income and can’t spend their money on things which reduces the overall revenue and general consumer spending and slows down the economy further.
On the other hand, when the economy is doing well, companies hire new employees who now have more money available and can use their additional income to buy ‘things’ and boost the economy, further increasing the need for companies to hire more people to meet the demand.
The hourly wages are the final piece of that puzzle because they show the purchasing power of those jobs.
Positive NFP numbers are good for the economy and, thus, investors will buy US-Dollars, anticipating a stronger economy in the future. A worse than expected NFP often leads to a falling US-Dollar as investors sell their US-Dollars.
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