Economic Reports Primer, Pt 1: Non-Farm Payrolls & Employment

The U.S. employment report is potentially one of the most market-moving economic releases each month. Here’s how to better understand its effect on markets.

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There’s a veritable alphabet soup of economic reports issued by the government each month, from GDP to CPI to PCE. What do these all mean for the economy and the stock market, and how can they inform your trading and investing decisions?

The Ticker Tape is here to help. In this first installment of our series on economic data reports, we’re looking at one of the most closely watched and potentially most market-moving economic releases each month: the U.S. employment report.

Officially known as the Employment Situation Summary, traders often refer to it as the non-farm payrolls report, because that’s a key component of the data and is often an explosive market trigger. In general, non-farm payrolls are the first "headline" figure that flashes across news screens as Employment Situation data is announced. This number simply reveals the number of new non-farm jobs that were created or lost in the U.S. during the previous month. The government’s Bureau of Labor Statistics gleans this information from a monthly survey of approximately 623,000 work sites throughout the country.

Report name: Employment Situation Summary
Released by: Bureau of Labor Statistics
Release date: Generally, the first Friday of the month
Release time: 8:30 a.m. Eastern time

Best trait: "This is one of the most influential market-moving reports because of the wealth of information. It is much more than just payrolls. It covers all the bases," says Patrick O'Hare, chief market analyst at Briefing.com. Digging deep into the employment report, investors can find information on construction jobs, manufacturing jobs, temporary help, average hourly earnings, average workweek, the overall unemployment rate, and much more. The information is widely used by economists, the Federal Reserve, and businesses for planning purposes.

Bonus: This report comes out early in the month, which adds an extra layer of importance to the data, as it’s one of the earliest economic indicators of the previous month.  

One weakness: "The data is subject to decent-size revisions. It comes out the first week after the month it covers, and [some revisions] can cloud … the interpretation of the current month when the prior month is revised," O'Hare says.

Tradability rating:
(a) Tends to be ignored. (b) Depends on overall trading climate. (c) Don't miss this one.

Don't miss this report. O'Hare ranks it a "10" on a scale of 1 to 10 for investors.

Current read: In March, non-farm payrolls rose by 215,000, while the civilian unemployment rate rose 0.1% to 5.0%. "The latest number indicates job growth is fairly good. The three-month average is 209,000," says O'Hare. One missing link that economists have been looking for is a significant increase in hourly earnings growth. "Average hourly earnings stands at 2.3% year over year,” O’Hare says. “It's roughly the same it’s been for the past five years.” He adds that’s likely why the U.S. economy isn’t seeing higher levels of consumer spending.

Mark your calendar: The Employment Situation Summary for April 2016 will be released on May 6, 2016, at 8:30 a.m. ET.

Check back next week as we take a look at the gross domestic product (GDP) report in our continuing series. 

Act On It: Chart and Analyze This Data

Correlation between non-farm payroll data & the civilian unemployment rate

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