This is one of the biggest indicators you will come across when you study fundamental analysis because it does so well at describing not just the state of the US economy but also how the other big economic indicators will turn out later in the month such as CPI, PPI, GDP, and even Housing. In another section I’ll discuss trading this announcement, but for the purposes of this lesson I just want to translate what it is, how its developed, and what it means.
Non-Farm Payrolls gets released the first Friday of every month by the Bureau of Labor Statistics (BLS) of the US department of Labor. It is a compilation of a series of surveys conducted by the BLS which is an independent fact finding body hired by the federal government to collect, process, analyze, and disseminate crucial economic data to the public. The key thing to understand regarding the service they perform is that they maintain a high degree of accuracy, quality, and impartiality in both the subject matter and presentation (straight facts, no opinions).
Now there are a lot of ways that this data gets used to fundamentally analyze the US economy. Some examples are: knowing how many people have become unemployed, their ages, gender, race, how they lost their job, type of jobs lost, etc. This information gets digested by the big thinkers in government so that they can determine policy directions to influence the future course of the economy. What you as a trader should worry about are the numbers regarding monthly estimates of employment, hours, and earnings for the nation, states, and major cities.
Now keep in mind that a month to month analysis of this report is not necessarily relevant at face value, since you have to take into account seasonal variations that occur. Year after year there tends to be predictable flucuations around the holidays, vacations, and harvest time that get taken into account using a statistical procedure, but that’s just getting too deep into it. Just keep that in mind as you do your monthly checkup on this data.
What this data means to you as a trader is that it can predict things like inflation or deflation which effects interest rates and other Federal economic policies that in turn effect the forex markets drastically. Taking this report and trying to analyze it on your own would be an insurmountable chore, so I suggest seeking a breakdown of the findings from a trusted source. I also share crucial elements of this report here.
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