Non-farm payrolls index: The secret to grasping the rhythm of the global financial market

When it comes to economic indicators with “destructive” impact on the financial markets, the non-farm payrolls index (Non-farm payrolls - NFP) is definitely among the top biggest “killers.” Every month, when this data is released, the stock, forex, cryptocurrency, and commodity markets all shake. But why does it have such great power? And how can you leverage it to improve your trading results?

What exactly is Non-farm Payrolls?

Non-farm payrolls is the monthly report on employment in the U.S. economy, published by the U.S. Bureau of Labor Statistics (Bureau of Labor Statistics). Simply put, it measures the number of people hired (or laid off) outside the agricultural sector in the past month.

This index includes workers in major sectors such as manufacturing, construction, services, retail, and many others. However, it excludes groups like farmers, government employees, military personnel, nonprofit organization employees, freelancers, and private household workers.

Differentiating between large and small NFP data: You need to know this

In the market, you’ll hear two concepts: “large non-farm data” and “small non-farm data.” They differ in origin, official status, and release timing:

Large non-farm data (Official NFP)

• Released on the first Friday of each month
• Time: 8:30 AM (Daylight Saving Time) or 9:30 AM (Standard Time) EST
• Vietnam time: approximately 8:30 PM or 9:30 PM
• This is official data, reflecting actual employment conditions
• Reflects overall trends in manufacturing and service industries

Small non-farm data (ADP Report)

• Officially called: ADP National Employment Report
• Published by the ADP Research Institute, not official data
• Released on the first Wednesday of each month
• Time: 8:00 AM (Daylight Saving Time) or 9:00 AM (Standard Time) EST
• Data collected from over 500,000 U.S. companies
• Purpose: provide early forecasts of employment conditions

Although the ADP report is not official data, seasoned investors often use it to “peek” before the official NFP data, because it has high accuracy and is released 2 days earlier.

Why is NFP data so important?

Imagine NFP as a magnifying glass through which you can see the true health of the U.S. economy. It’s not just a number; it’s a comprehensive measure of:

Labor market health: When employment increases, it means businesses are expanding, hiring, and the labor market is healthy. Conversely, if employment decreases or grows slower than expected, it could be a warning sign of economic slowdown.

Economic growth momentum: Labor is a core factor of production. GDP is generated by the non-farm labor force accounting for over 80% of U.S. GDP. Therefore, when employment rises, it’s very likely that the entire economy is accelerating.

Consumers’ purchasing power: Jobs = income, and income = spending. When employment increases, people tend to spend more, stimulating economic growth.

Unemployment rate: NFP data is closely related to the unemployment rate. When employment increases, the unemployment rate automatically decreases (and vice versa).

Average hourly wages: The silent inflation indicator

Besides employment numbers, you should also pay attention to “average hourly earnings” (Average Hourly Earnings). If employment increases but wages decrease, it could be a negative sign. Conversely, if both increase, it’s a strong positive signal.

Scope of statistics: Who is counted, who is not?

Included in NFP:

• Manufacturing workers
• Construction workers
• Service and retail workers
• Professional and other service employees
• Management personnel

Not included in NFP:

• Farmers (separately in agricultural reports)
• Government and military personnel
• Nonprofit organization employees
• Freelancers
• Private household workers
• Self-employed professionals

Understanding this scope is very important because it helps you understand what the NFP data reflects and what it does not.

How the Fed uses NFP data to decide interest rate policies

The (Federal Reserve) is the “king” of the financial markets. When the Fed changes interest rates, the entire financial world feels it. And NFP data is one of the most closely watched indicators by the Fed.

Scenario 1: Better-than-expected NFP data

• The Fed assesses the economy as accelerating
• If inflation is also high, the Fed may raise interest rates
• If NFP increases strongly and consistently, it supports tightening policies

Scenario 2: Weaker-than-expected NFP data

• The Fed worries about signs of economic slowdown
• The Fed may consider lowering interest rates to stimulate growth
• If NFP remains weak, it could lead to a cycle of rate cuts

Global impact of NFP: Not just an American issue

Since the U.S. is the largest economy in the world, any Fed decision causes waves across global financial markets.

Stock market: Loves the “green” numbers

When NFP data exceeds expectations and shows steady growth:

• Investors feel optimistic about economic prospects
• They believe corporate profits will rise
• Capital flows strongly into the stock market
• Indices usually rise on the release day

Conversely, when data is weak:

• Investors sell off stocks
• Stock indices often fall sharply
• Cyclical and growth stocks face selling pressure

Forex market: The US dollar as a “safe haven asset”

NFP has a direct impact on the value of the US dollar:

When NFP is good:

• The U.S. economy is strong
• Demand for the dollar increases
• The dollar is valued higher
• Currency pairs like USD/JPY, USD/EUR often rise

When NFP is weak:

• Market doubts U.S. outlook
• Investors may shift to other currencies
• The dollar faces downward pressure
• Currency pairs with the dollar often decline

Commodity markets: Gold, oil, and the “kings”

Gold (Safe haven asset):

• When NFP is good → Dollar strengthens → Gold faces pressure (since gold is priced in dollars)
• When NFP is weak → Investors seek safety → Gold is bought

Crude oil (Energy):

• When NFP is good → Strong economy → Increased energy demand → Oil rises
• When NFP is weak → Economic slowdown → Demand decreases → Oil falls

Cryptocurrency markets: Indirect but powerful connection

Cryptocurrencies are not directly affected by NFP, but the indirect impact is significant:

When NFP exceeds expectations:

• Investors feel confident in traditional assets
• Demand for “high-risk assets” like crypto decreases
• Capital flows out of crypto
• Bitcoin, Ethereum often face selling pressure

When NFP is weaker than expected:

• Investors worry about recession
• The Fed may cut interest rates
• Investors seek higher returns
• Crypto can be bought back

S&P 500, Nasdaq: Strong correlation

Major stock indices have a very close correlation with NFP:

When NFP is strong:

• High growth expectations
• Corporate profit forecasts are good
• Indices usually rise

When NFP is weak:

• Growth expectations decline
• Companies may cut costs/profits
• Indices often fall

Advanced tips: How to “shine a light” on NFP data like a pro

1. Look at trends, not just single numbers Experts rarely focus on just one month. Instead, they analyze trends over 3-6 months to understand if the economy is accelerating or slowing down.

2. Compare with market forecasts A 100,000 increase in NFP is not necessarily good. If the forecast was 150,000 and the result is only 100,000, the market will be “disappointed” and sell off. Always compare actual data with forecasts.

3. Pay attention to inflation indicators (CPI, PPI) Good NFP but high inflation can force the Fed to raise interest rates → bad for stocks. Combine CPI and NFP analysis for a complete picture.

4. Watch average hourly wages If employment increases but wages decrease, it’s a warning sign. This could mean companies are hiring lower-quality jobs.

5. Follow the ADP report beforehand The ADP report is published 2 days before the official NFP. If ADP is weak, the market will start pricing in that expectation, giving you a chance to prepare.

Trading strategies when NFP is released

Before release:

• Limit large positions
• If holding positions, set tight stop-losses
• Monitor expert forecasts

At release:

• Markets often experience high volatility in the first 15-30 minutes
• If you are a trader, wait for volatility to subside before entering
• If you are a long-term investor, stay calm

After release:

• Analyze and process information
• Adjust positions if needed
• Avoid rushing decisions based on short-term reactions

Conclusion: NFP is not everything, but it’s very important

The non-farm payrolls data is one of the most powerful “catalysts” in global financial markets. However, it is not the only economic data you should pay attention to.

To trade effectively, you need to:

• Understand what NFP is and what it reflects
• Follow long-term trends, not just one month
• Combine NFP with other indicators (CPI, interest rates, GDP)
• Manage risks seriously
• Avoid putting all your capital into a single decision based on one number

Mastering how to use NFP data is a crucial skill for any investor wanting to participate in global financial markets. Start today!