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Your Guide to the Nonfarm Payroll

Miguel A. Rodriguez
Miguel A. Rodriguez
05 October 2023

The US NFP data to be released tomorrow is thought to provide a clearer picture of the labour market. If the forecast is correct, this could mean that the labour market is beginning to weaken. 

On Friday, October 6th at 12:30 GMT the NFP for September will be published. Be sure to keep your eyes open as markets could be volatile.  

Previous (August NFP): 187K

Forecast: 171K

What is the Nonfarm Payroll?

The nonfarm payroll (NFP) is the number of jobs created during a specific month in the United States, excluding the agricultural sector. It is released by the US Bureau of Labour Statistics on the first Friday of every month.

It is an indication of the overall health of the US economy. A strong NFP figure shows that jobs are being created and people can find employment. This can drive up prices and inflation. A weak NFP figure shows a slowdown in the labour market and economic growth. If employment figures are high, this can create high inflation which can in turn influence monetary policies and interest rates. Changes in rates can then translate into movements of the US Dollar and the Forex market.

Why is this figure important?

The Federal Reserve (Fed) is trying to cool down the labour market – which is currently very strong - to fight inflation. The Fed’s main ammunition in this battle is to raise interest rates.  

If the forecast turns out to be correct and less jobs were created in September, this could point to the end of the Fed’s rate hike cycle for now. The stock market, which has been under pressure lately, may begin to recover and the US Dollar may begin to weaken.  

It is important for traders to know the NFP figure when it comes out because this figure often triggers market movements which could affect trading.  

How can it affect the market?

If the NFP figure is higher than expected, it means the labour market remains robust and expectations of further rate hikes will increase. This may negatively affect the stock market and strengthen the US Dollar.

If the NFP figure is lower than expected, investors will anticipate an end to rate hikes and even rate cuts. This would be very positive for the stock markets and would probably put downward pressure on the US Dollar weakening it.

The average NFP forecast for September is 171k.

Some of the instruments most likely to be affected by the NFP figure are:

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Source: Forex Factory

 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.