Trading on the News: Non-Farm Payroll Reports

The non farm payroll report released on the first Friday of each month is one of the most important reports for a multitude of different financial markets. The US stock market, foreign currency markets, and debt markets all make big moves on the non-farm payroll numbers – and for good reason.

What is the Non Farm Payroll Report?


The non-farm payroll report is a compilation of data released by the US Government's Bureau of Labor Statistics (BLS). Non-farm payroll numbers, collected by the BLS, are considered to be a very important number, as it shows the monthly change in employment and where the economy is growing the most.

The non-farm payroll statistics are offset each month with births and deaths, and it is also adjusted for seasonality. During the fall seasons, non-farm payroll should increase as back to school and holiday shopping creates more demand for retail workers. During the winter, payroll drops as outdoor construction is suspended or reduced. These adjustments help ensure the Non Farm Payroll Report is as accurate as possible in counting real changes in non-farm payroll.

A Barometer of Economic Growth


Very rarely does an economy sit at the same employment level from month to month, and usually an economy is consistently adding or subtracting jobs during a boom or bust leg of the business cycle. The non-farm payroll numbers release is most important when it follows a trend of consistent job gains or losses, as the newest numbers may reflect a reduction or increase in employment. Such sudden changes, especially those that bring an end to a non farm payroll trend, are the most important, and they create the wildest swings on the financial markets.

Trading the Non Farm Payroll Report


Before, during, and after the release of non-farm payroll statistics, tens of billions of speculative dollars flow in and out of every financial market. In the stock markets, traders prepare for the release with long and short positions on whole equity indexes, such as the S&P500, or they move into stock trading posts to buy or sell stocks that have a heavy reliance on wages and income like luxury product makers.

The currency markets are far more active during the Non Farm Payroll Report release. Nearly all USD denominated pairs, including EURUSD and GBPUSD, become wildly active, and some brokers even lock out these pairs shortly before and after the release due to the whipsaw markets that usually start before and continue until just after the numbers are booked.

Mind the Non-Farm Payroll


All traders should keep in mind the release of the Non Farm Payroll Report and plan their trades accordingly. Some day trading professionals exit the market for the few minutes before and after the report, and many speculators refuse to take positions that would be affected by the non farm payroll due to its near global impact on any US related security.

Thus, while the non-farm payroll data may be interesting and occasionally profitable to trade, many times it may be best to avoid the volatility all together if you're not well prepared to ride the wild, intra-day volatility.
Tim Ord
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Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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