Nonfarm Payrolls: What to expect as NFP report comes on a holiday
|- Nonfarm Payrolls data is released on the first Friday of every month at 12:30 GMT, reflecting the previous month's data.
- This year's NFP coincides with the Good Friday holiday, like in 2021, 2015 and 2012.
- Federal Reserve policymakers will use it to assess the state of the economy and shape their monetary policy decisions.
The US Nonfarm Payrolls (NFP) report for March 2023 will be released on April 7, at 12:30 GMT. This will be on Good Friday, which is a Federal holiday. Accordingly, the US stock market will be closed, but the Futures and Forex markets will remain open.
The NFP report reflects the previous month's data, comprising data and statistics regarding the employment situation in the United States. It is a very important macroeconomic indicator, as it helps to shape the Federal Reserve (Fed) monetary policy, impacting the value of the US Dollar and most asset classes throughout the financial markets.
Nonfarm Payrolls FAQs
What are Nonfarm Payrolls?
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls' result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
How does Nonfarm Payrolls affect the US Dollar?
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls' figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
How does Nonfarm Payrolls affect Gold?
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls' figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Sometimes NonFarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the "Great Resignation" or the Global Financial Crisis.
Nonfarm Payrolls, a must-watch into Q2 of 2023
Nonfarm Payrolls report is a must-watch for many, providing a peep into US job numbers. As we enter the second quarter of 2023, the employment situation in the United States has been buoyant, with the Federal Reserve not having to worry about this side of its double-mandate (keeping full employment and inflation close to the 2% target). Impressively, NFPs have beaten market expectations in the last 11 releases.
Read: Why this week's Nonfarm Payrolls is critical for cryptos
Thus far, job growth remains strong enough to keep unemployment claims and the unemployment rate relatively low. However, several factors indicate a jobs market that is losing momentum. These include:
- Moderating private sector job growth
- A deceleration in the Bureau of Labor Statistics (BLS) private sector employment diffusion index
- Falling manufacturing employment in February
- The BLS' manufacturing employment diffusion index turned negative in February
- Fed branch surveys showing an ongoing weakening of key manufacturing and services sector indicators
- Ongoing moderation in average hourly earnings growth
- Ongoing moderation in the rate of quits
With the Fed aggressively monetary policy tightening, a weakening employment market should not be surprising. This is because just as the Fed's loosening of monetary policy encourages a boom in economic activity, the Fed's tightening of monetary policy encourages a bust.
As opposed to many having expectations for a soft or no landing scenario, the extent of the Fed's tightening has resulted in a year-over-year decline in the money supply. This suggests that the US economy could be nearing particularly negative economic shock.
The labor market is getting less tight, which is one of the Fed's conditions for pausing its interest rate hiking campaign. However, the Fed also wants to see core inflation slow more.
Trading NFPs upon holiday release
While NFPs on Good Friday are a rare occurrence, it does happen. The last three times this jobs report coincided with this holiday were in 2021 and 2015, and 2012. On average, therefore, it happens every three years. The sequence can help give a sense of what could happen regarding price action.
In 2021:
- The number was a blowup of 900,000 against the expected 600,000, a vigorous surprise.
- USD/JPY only had a 20-pip range, which is negligible.
- EUR/USD had a 37-pip range.
- Conclusion: We cannot expect much, even if there is a blowup number.
In 2015:
- The number was abysmal, recording 126 against the expected 244. This was a big disappointment marking around 50% of expectations.
- USD/JPY moved 110 pips range, a big move from an NFP report released on holiday.
- EUR/USD had a smaller but sizeable move of 75 pips.
In 2012:
- Recorded a 130 pip range in USD/JPY
- 30 pip range in EUR/USD
Based on these numbers, it is ill-advised to draw fast conclusions as big and small moves evoke different reactions. Notably, a lot of it has to do with Fed expectations.
How do Nonfarm Payrolls influence Federal Reserve expectations?
In 2021, the Fed was transparent about what they were doing, and the market had a complete discount and expected the Fed policy actions. As regards 2015 and 2012, the market was more at crossroads, given they were not very short, and the NFP report played a huge role in affecting positioning and market expectations. This is the same situation that is in the market right now.
The market is split into the possibility of a 25-basis-point rate hike from the Fed (against no hike at all) in their May 3 meeting. This means they will be looking at the NFP reports very close to either reinforce their view that the banking crisis concerns are not that significant in the fetches plough forward or cast doubt on what the market currently expects, which is another quarter-point move in May.
Either way, the best decision is to stand down because there are many trading opportunities and days in the year. In fact, some traders do not trade on holidays and ahead of NFPs because of the "whisper fears" event.
Strong growth in NFP data could indicate heating inflation, which investors will analyze to determine the Federal Reserve's next monetary decision.
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