Non-Farm Payroll – What is NFP

Non-Farm Payroll also known as U.S Employment change/NFP is one of the leading indicators in Forex market. The NFP focuses on jobs created or lost in the current month, and that exclude farm/agricultural workers hence the name Non-Farm Payroll. We (traders) look for that small change or shift in the figure released as compared to the previous month. Because NFP is released every first Friday of each month, there are previous and also forecast/expected figures. When the figure comes out above forecast, it means more jobs were created (excluding farm workers) and the market perceives that as good for currency involved (USD), and when it comes out below forecast, the opposite is perceived. NFP is the most watched economic event of the month. During this period, the market becomes volatile. NFP is also a leading indicator in determining the U.S economic growth and inflation. There is another economic event that is released along with NFP, it is called Average Hourly Earnings. Average Hourly Earnings is overlooked by many traders. It is also released every first Friday of the month at the same time as NFP.

What is Average hourly Earnings and how does is affect the NFP figures

Average Hourly Earnings is also released by the Bureau of Labor statistics and it measures the change in the price businesses pay for labor or amount that the employees make per hour in the current month, and that excludes the farm/agricultural industry, it is also released every first Friday of the month at the same time as NFP. I believe it should not be overlooked, I have overlooked it a couple of times and I ended up being confused by the NFP outcomes. When businesses pay more for the labor, the higher costs are usually passed on to the consumer. When the NFP figure comes out above forecast, it means more jobs were created, but when the Average Hourly Earnings comes out below forecast, it also means the amount that the workers are making per hour has decreased, which then also contribute to their spending, that is where the conflict is, the results must be in sync with each other. It happened again on the previous NFP (5th Feb), the figures were clashing, see screenshot below taken from previous NFP, next time when you trade NFP, try not to overlook the Average Hourly Earnings.

My past experience of trading NFP has taught me to look deeper than just the NFP figure, I have been disappointed so many times, when the NFP figure was so good and also the deviation trigger reached, but US Dollar never rallied as expected. Keeping a trading journal and doing post analysis on your trades and also having a trading plan is good practice and that is how you can improve and gain more skill, that is how I got to realize that I needed to pay attention to the Average Hourly Earnings. If you have been trading NFP, I am definitely sure you have seen what I am talking about and hopefully you’ll pay attention next time. Thank you for stopping by, below are the dates to diaries for the NFP 2016.