What is nonfarm data?
Nonfarm data refers to the Nonfarm Payroll Report released monthly by the U.S. Department of Labor, also known as the Employment Situation Report or nonfarm employment data. The report provides statistical data on the employment situation in the U.S. nonfarm sector, including changes in nonfarm employment numbers, unemployment rates, average hourly earnings, and work hours among other indicators.
Nonfarm data is a crucial indicator for assessing the health of the U.S. economy and the performance of the job market, exerting a wide-ranging impact on global financial markets and economic decisions. It reveals the increase or decrease in employment numbers in the nonfarm sector, namely industries other than agriculture, including manufacturing, construction, finance, education, and health services.
Investors, economists, policymakers, and market participants closely monitor nonfarm data because it provides vital information about the U.S. labor market. Strong nonfarm data is typically seen as a sign of a robust economy, indicating growth in the job market and positive economic activity. Conversely, weak nonfarm data may suggest a sluggish job market, potentially putting pressure on economic growth and market confidence.
How nonfarm data is compiled:
Nonfarm data is collected and calculated through two survey methods by the U.S. Department of Labor: the Establishment Survey and the Household Survey.
The Establishment Survey focuses on businesses and employers, with the Department of Labor selecting a sample of establishments across the country representing different industries and regions. Surveyors obtain information on employment, changes in employee numbers, and wage levels during a specific survey period through questionnaires or telephone interviews.
The Household Survey, on the other hand, focuses on individuals and households, with a sample of households selected from the public. Surveyors conduct face-to-face or telephone interviews with members of selected households to understand their employment status, labor force participation, and unemployment situation. These two survey methods offer different data dimensions and perspectives, complementing and validating each other to ensure the accuracy and comprehensiveness of nonfarm data.
The U.S. Department of Labor corrects and weights the collected data to reflect the national employment situation and releases the Nonfarm Payroll Report on the first Friday of each month.
The impact of nonfarm data
Nonfarm data has a broad impact on the economy, financial markets, and policy-making, manifested in several ways:
Job Market:
Nonfarm data is an important indicator of the health of the job market. It shows key metrics such as employment numbers, unemployment rates, and labor participation rates, providing information about the supply and demand relationship in the job market and labor force participation. Strong nonfarm data indicates a robust job market, having a positive effect on economic growth and consumer spending. Conversely, weak nonfarm data might signify a sluggish job market, potentially leading to reduced consumption and slowed economic growth.
Economic Growth:
Nonfarm data influences expectations and assessments of economic growth. The job market is one of the significant drivers of economic activity and consumer spending. Strong nonfarm data usually means increased job opportunities and higher labor income, thereby stimulating consumption and economic activity. On the other hand, weak nonfarm data may indicate fewer job opportunities and lower labor income, potentially putting pressure on economic growth.
Monetary Policy:
Nonfarm data plays a significant role in the formulation of monetary policy. Central banks often consider the health of the job market to assess the overall performance of the economy. If nonfarm data shows a strong job market, central banks might implement tightening monetary policy measures, such as hiking interest rates or reducing money supply, to avoid inflationary pressures. Conversely, if nonfarm data is weak, central banks might adopt easing monetary policy measures, such as cutting interest rates or increasing money supply, to promote economic growth and employment.
Financial Markets:
Nonfarm data directly impacts financial markets such as stock, bond, and foreign exchange markets. Strong nonfarm data is usually regarded as a signal of a robust economy, possibly triggering optimistic investor sentiment and buying activity, driving stock markets up, appreciating the currency, and causing bond prices to fall. In contrast, weak nonfarm data might raise investor concerns and pessimistic sentiment, potentially leading to stock market declines, currency devaluation, and rising bond prices.
