What is nonfarm payrolls?

Nonfarm payrolls (NFP) is the headline figure from the Bureau of Labor Statistics' monthly Employment Situation report, commonly called the "jobs report." It measures the total number of paid workers in the US economy excluding farm employees, private household workers, nonprofit organization employees, and active military personnel. The month-over-month change in this number is the single most closely watched economic data point in the world.

The jobs report is released on the first Friday of each month (covering the prior month's data) and routinely causes large moves in bonds, stocks, currencies, and commodities within seconds of release. Markets focus on NFP because it provides the most comprehensive and timely read on the health of the labor market, which is one of the two mandates of the Federal Reserve (along with price stability).

A strong NFP reading, meaning more jobs added than expected, generally pushes bond yields higher and the dollar stronger as markets price in tighter monetary policy. Equity markets can react either positively (strong economy) or negatively (higher rates) depending on the broader context. A weak reading does the opposite, as markets anticipate easier monetary policy.

Beyond the headline NFP number, the jobs report contains several other closely watched components. The unemployment rate (from a separate household survey) provides a different angle on the labor market. Average hourly earnings measure wage growth and its implications for inflation. The labor force participation rate indicates whether people are entering or leaving the workforce. Revisions to prior months' data are also important and sometimes move markets as much as the headline figure.

Interpreting NFP requires context about the economic cycle. In a mature expansion, payroll gains of 150,000-200,000 per month are considered healthy, roughly keeping pace with labor force growth. During recoveries, gains above 300,000 are common. Negative readings are associated with recessions. The three-month moving average is often more informative than any single month due to the inherent noise in the survey, which has a 90% confidence interval of roughly plus or minus 100,000 jobs.