Nonfarm Payrolls: How the US Jobs Report Moves Futures and Forex

Key takeaways

• Nonfarm payrolls is the monthly change in US payroll jobs outside farming, the headline figure of the BLS Employment Situation report.
• The report combines two surveys: the establishment survey (payrolls, hours and earnings) and the household survey (unemployment rate).
• It is usually released on a Friday early in the month at 8:30 a.m. Eastern Time, before the US stock market opens, so futures and currencies react first.
• Revisions and sampling error are large: the BLS puts the 90 percent confidence interval for the monthly payroll change at about plus or minus 122,000.
• Markets react to the surprise in payrolls, unemployment and wages and to what it implies for Fed policy, and first moves are often revised once details are read.

Nonfarm payrolls and the US jobs report: the short answer

Nonfarm payrolls (NFP) is the monthly change in the number of paid jobs in the US economy outside farming, as estimated by the Bureau of Labor Statistics (BLS). It is the headline figure of The Employment Situation, the US jobs report, which also contains the unemployment rate and average hourly earnings. The report is usually released on a Friday early in the month, at 8:30 a.m. Eastern Time, and covers the previous month.

Futures and forex traders watch it because employment is one half of the Federal Reserve's dual mandate of maximum employment and stable prices. A report that changes the outlook for the labour market changes expectations for interest rates, and those expectations move Treasury yields, the US dollar, stock index futures and gold, often within seconds of the release.

Who publishes the report and how it is built

The Employment Situation is produced by the BLS from two separate surveys. The establishment survey, the Current Employment Statistics (CES) program, covers about 119,000 businesses and government agencies representing about 622,000 worksites, and produces payroll employment, hours and earnings. The household survey, the Current Population Survey (CPS), is a sample of about 60,000 eligible households contacted by Census Bureau interviewers, and produces the unemployment rate and other measures of the labour force.

Both surveys refer to the middle of the month: the establishment survey to the pay period that includes the 12th, the household survey to the calendar week that contains the 12th. The BLS publishes its release schedule in advance, and dates can move, so its official calendar is the reference rather than a rule of thumb.

The three numbers that matter: payrolls, unemployment and wages

Nonfarm payrolls count people on establishment payrolls who received pay for any part of the pay period. They exclude farm workers, sole proprietors and the unincorporated self-employed, unpaid volunteer or family workers and domestic workers, and government employment covers civilian employees only. The headline is the change from the previous month, not the total number of jobs.

The unemployment rate comes from the household survey. It is the number of unemployed as a percentage of the labour force, the sum of the employed and the unemployed. To be counted as unemployed, a person must have no job, be available for work and have actively looked for work in the prior four weeks; people waiting to be recalled from a layoff are counted as well.

Average hourly earnings come from the establishment survey: aggregate weekly payroll divided by aggregate weekly hours. They include overtime and other premium pay but exclude benefits, irregular bonuses and payroll taxes paid by employers. Traders read them as a gauge of wage pressure, which can feed into inflation and therefore into the Federal Reserve's outlook.

• Nonfarm payrolls: monthly change in payroll jobs, the headline number.
• Unemployment rate: share of the labour force without a job and looking for one.
• Average hourly earnings: change in hourly pay, read as a signal of wage pressure.

Revisions and the noise in a single month

The first payroll estimate is not final. The BLS routinely revises the two previous months to include additional sample reports, and an estimate is considered final only after those two revisions. Once a year, a benchmark revision aligns the March level of employment with fuller counts based mainly on unemployment insurance records.

Sampling error is large compared with a typical monthly change. According to the BLS, the 90 percent confidence interval for the monthly change in total nonfarm employment is on the order of plus or minus 122,000. A gap of a few tens of thousands between the actual figure and the consensus can therefore sit well inside the statistical noise, even when markets treat it as a surprise.

The two surveys can also disagree for a while. They use different samples, definitions and reference periods: the household survey counts people, including the self-employed, while the establishment survey counts jobs, so someone with two jobs appears twice. Seasonal factors, recalculated every month, add another source of revision. Reading the trend over several months, together with the revisions, gives a sounder picture than any single headline.

How nonfarm payrolls move futures and forex

The reaction follows the same logic as other macro releases: what matters is the surprise relative to expectations and what it implies for Federal Reserve policy. The consensus for payrolls, the unemployment rate and average hourly earnings is already in prices before the release; the gap between those forecasts and the actual figures, plus the revisions to earlier months, drives the move.

The usual transmission runs through rate expectations. Stronger hiring or faster wage growth than expected tends to raise the expected path of interest rates, pushing short-dated Treasury yields up and tending to support the dollar against currencies such as the euro; weaker figures tend to do the opposite. Stock index futures can react either way: strong data can support them as a sign of growth or weigh on them through higher yields, depending on what the market is focused on.

Gold tends to respond to the move in yields and the dollar, since it pays no interest. The components can also pull in different directions, for example strong payrolls with soft wages, or a falling unemployment rate alongside weak payroll gains, and the first reaction is sometimes reversed once traders have read the revisions and details.

• Interest rate futures and Treasury yields: usually the most direct reaction, through expected Fed policy.
• US dollar: EUR/USD, USD/JPY and currency futures such as 6E react within seconds.
• Stock index futures: ES and NQ, with the sign of the reaction depending on whether growth or rates dominate.
• Gold: generally moves against yields and the dollar, though not on every release.

Volatility and execution around the release

The minutes before the jobs report are often quiet and thin: many participants cancel resting orders and depth in the order book falls. At 8:30 a.m. Eastern Time, prices can jump several ticks between trades, spreads in spot forex widen and stop orders may be filled well beyond their level. The bar that contains the release can be one of the largest of the session.

Because the release lands before the regular US stock market session opens, the first reaction happens in futures and currencies. Liquidity usually returns within minutes, but the direction of the first move is not a reliable guide to the rest of the day.

Building a plan for jobs report day

Treat the employment report as a scheduled risk event and plan for it before the week starts. Our guide on how to read an economic calendar covers the consensus, revisions and time zones, and our article on US inflation reports explains the other release that most often moves rate expectations.

• Check the release date on the BLS schedule: it is usually a Friday early in the month, but not always the first one.
• Note the consensus for payrolls, the unemployment rate and average hourly earnings, and the previous months that may be revised.
• Decide in advance whether to be flat, hold a reduced position with a wider stop, or wait for the first reaction to settle.
• Size any position held through the release from the wider stop; the position size calculator converts it into a number of contracts, and our guide to futures risk management covers slippage and daily limits.
• After the release, read the revisions and details before drawing conclusions from the headline.

Put it into practice

• Economic calendarThis week’s releases, with FOMC dates and COT publication days.
• Fed rate monitorRate decision probabilities for the next FOMC meetings.
• Futures position size calculatorTurns a stop in ticks or points into a number of contracts for the risk you choose, using official tick values.

Frequently asked questions

Sources

1. E-mini S&P 500 (ES) : value of one tick per contract — CME Group
2. Micro E-mini S&P 500 (MES) : value of one tick per contract — CME Group
3. Employment Situation Technical Note — U.S. Bureau of Labor Statistics
4. Current Employment Statistics (CES) — U.S. Bureau of Labor Statistics
5. How the Government Measures Unemployment — U.S. Bureau of Labor Statistics
6. Current Employment Statistics: Concepts (Handbook of Methods) — U.S. Bureau of Labor Statistics
7. Schedule of Releases for the Employment Situation — U.S. Bureau of Labor Statistics
8. What economic goals does the Federal Reserve seek to achieve through its monetary policy? — Federal Reserve Board

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