What are the US non-farm payrolls and how do they influence the financial markets?

View from the dealing floor at IG, home of spread betting CFDs and forex. Watch a video about forex trading and learn from IG’s chief market strategist.

The non-farm payrolls is a figure released on the first Friday of every month by the Bureau of Labor Statistics in the US. The figure is designed to represent the total number of US paid workers across most sectors.

However the figure excludes employees in a number of sectors, including employees working in general government jobs, people serving as private residence employees, employees working in non-profit organizations who provide any type of assistance to individuals, and, most importantly, farm employees.

The figure represents 80% of employees who contribute to the US’s gross domestic product (GDP). The non-farm payroll figures have, historically, been important signposts to the overall health of the US economy.

Economists and policy makers use the statistic in predicting future economic activity as it tends to be a useful indicator of both the underlying trend in financial markets and the mood of investors.

Non-farm payrolls are, therefore, an important indicator of job creation. A figure higher than the previous month indicates that more jobs have been created over that period. An up-turn in the amount of US citizens in full employment usually has a positive influence on consumer spending and therefore economic activity in the US. Hence mainly analysts are looking at this figure as the main indicator to when the US Federal Reserve (Fed) will begin tapering its economic stimulus programme.

In broad terms, a higher figure than the previous is taken as positive (or bullish) for the US dollar; a lower figure would be taken as negative (bearish) for the US dollar.  The same applies for if the figure exceeds or misses the aggregated expectations of eminent economic analysts.

On December 6 2013 the non-farms figure was 203,000 and this was both better than expectations and higher than the previous figure.

Commenting on what this meant for the Fed and the beginning of the end of it economic stimulus programme, Andrew Wilkinson, chief economist at Miller Tabak said, ‘The driver for the (Fed) is the headline unemployment rate, which we continue to predict will result in a mere $5 billion reduction in the flow of security purchases at the December meeting.’

For the latest news about the financial markets visit: http://www.ig.com/uk/market-news-and-analysis

Spread bets and CFDs are leveraged products. Spread betting and CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

This information has been prepared by IG, a trading name of IG Markets Limited. The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.