What Are Nonfarm Payrolls (NFP)? Meaning and Market Impact

Search Fintrev

Search our guides, reviews and glossary.

Nonfarm payrolls (NFP) is the U.S. Bureau of Labor Statistics (BLS) count of paid workers on the payrolls of businesses and government agencies, excluding farm workers and several other groups. The figure that moves markets each month is the change in that count from the previous month, often labeled “non-farm employment change” on economic calendars. A reading of +200,000, for example, means employers added a net 200,000 jobs during the reference month.

What nonfarm payrolls count and exclude

NFP measures jobs, not people. Someone holding two payroll jobs appears twice, and someone working only for themselves does not appear at all.

Groups left out of the count:

• Farm workers, which gives the series its name
• Active-duty military members (civilian government employees are counted)
• Private household employees, such as domestic workers employed directly by a household
• Unincorporated business owners, including sole proprietors and other self-employed workers
• Nonprofit employees
• Certain government roles: appointed officials and employees of the CIA, NSA, National Geospatial-Intelligence Agency and Defense Intelligence Agency

How the Employment Situation report is built

Establishment survey (payrolls)

The establishment survey, formally the Current Employment Statistics (CES) program, asks employers about their payrolls. It produces the headline nonfarm payroll number and also reports:

• Total nonfarm jobs added or lost in the month
• Job changes by industry, such as goods-producing sectors (durable and nondurable goods), services and government
• Average weekly hours worked
• Average hourly earnings

Household survey (people)

The household survey, the Current Population Survey (CPS), interviews households about the employment status of their members. It produces the unemployment rate and breaks it down by gender, race, education and age. It also covers reasons for unemployment, alternative work arrangements and the labor force participation rate.

The labor force participation rate is calculated as:

Participation rate = (Employed + Unemployed but actively seeking work, age 16+) ÷ Civilian noninstitutional population age 16+

Because the two surveys use different samples and definitions, they can point in different directions in the same month. Payrolls can rise while the unemployment rate also rises, for example if more people start looking for work and enter the labor force faster than they find jobs.

How to read NFP data

1. The monthly change vs. expectations. Markets price in a consensus forecast, so the surprise, the gap between actual and expected, usually explains the reaction better than the size of the number alone.
2. Revisions. The BLS revises the two prior months as more employer responses arrive and benchmarks the series annually against more complete records. A strong headline paired with large downward revisions describes a weaker labor market.
3. Industry detail. Gains concentrated in one sector, or driven mainly by government hiring, say less about private-sector demand than broad-based gains.
4. Wages and hours. Average hourly earnings feed into inflation analysis, so the report is often read alongside the Consumer Price Index.

Hypothetical example

Assume these figures, invented for illustration:

The headline change is 158,180,000 − 158,000,000 = +180,000, beating the forecast by 30,000. But the revisions remove 60,000 jobs from earlier months, so employment is 30,000 lower than the market believed before the release (+180,000 − 150,000 expected − 60,000 revised). A report that looks strong from the headline alone is softer when read in full.

Why nonfarm payrolls matter to markets

Employment drives consumer spending, which in turn drives much of U.S. GDP. According to the BLS, nonfarm categories account for about 80% of the workers who contribute to GDP. Economists and policymakers use the full report to judge growth, inflation pressure and the likely path of interest rates.

A strong report with rising wages can raise expectations that the Federal Reserve will keep rates higher, which tends to support the dollar and push Treasury yields up. A weak report can do the opposite. Equity indexes such as the S&P 500 and gold can move either way, depending on whether investors focus on growth or on rates. Spreads can widen and prices can move sharply in the minutes after the 8:30 a.m. release.

Release schedule

The BLS usually publishes the Employment Situation report on the first Friday of the month at 8:30 a.m. Eastern time, covering the previous month. The exact date can shift because of holidays or the timing of the survey reference week, so the BLS release calendar is the authority for any given month.

Leading or lagging indicator?

NFP describes what happened to employment in the prior month, so it is treated as a coincident or lagging measure, not a leading one. Employers often delay layoffs and hiring until a slowdown or recovery is already under way. Its value lies in being timely and detailed, not in predicting turning points.

Limitations

• Coverage gaps. Self-employed, farm, household and nonprofit workers fall outside the count, so changes in those groups go unseen.
• Jobs, not workers. Multiple jobholders are counted more than once, and the figure says nothing about whether jobs are full or part time.
• Seasonal adjustment. The headline is seasonally adjusted to strip out regular patterns such as holiday hiring. Unusual timing can distort the adjusted number in a given month.
• Sampling error. As a survey estimate, a small monthly change may not be statistically different from zero.

Nonfarm payrolls vs. related measures

• NFP vs. unemployment rate: NFP counts jobs reported by employers. The unemployment rate, from the household survey, is the share of the labor force without work and seeking it.
• NFP vs. household employment: Household employment counts employed people, including the self-employed and farm workers, so its level and monthly change differ from payrolls.
• NFP vs. private payrolls: Private payrolls exclude government jobs. The total nonfarm figure includes federal, state and local government employment.

The Bottom Line

Nonfarm payrolls matter to traders, economists and anyone watching interest rates, the dollar or Treasury yields. Read the gap between the actual change and the consensus forecast, then check revisions, industry detail and wages before judging the labor market. Treat the figure as a timely, detailed look at the prior month rather than a predictor of turning points.