04/11/2021
Non Farm Payrolls (NFP) measures the amount
of jobs gained in the U.S. during the previous
month that aren’t farm related. It is typically
released on the first Friday of the new month,
and also includes the Unemployment Rate,
Average Hourly Earnings, and the Participation
Rate. While all of those releases can have an
impact, NFP is the main driver of market
movement and is often times the single most-
watched economic event that is released on a
monthly basis.
Unlike men, not all economic news events are
created equal. Some events create a lot of
hysteria and knee-jerk reactions, whereas
others barely cause a blip on the radar. The
ubiquitous Non-Farm Payroll (NFP) report out
of the U.S. is an example of the former.
So much attention is paid to the NFP report
that pundits from across the financial
blogosphere attempt to predict its eventuality
and impact across a variety of financial
instruments.
The large reaction is due in part to the Dual
Mandate of the Federal Open Market
Committee of maximum employment and
stable prices. The “maximum employment” part
of that mandate means that the Fed looks at
NFP to help determine what interest rates will
be in the future which has an outsized impact
on the health of the economy. If job growth is
strong, the Fed would typically look to raise
interest rates assuming inflation is in check,
and vice versa if job growth is weak. However,
simply determining if NFP is weak or strong is
another matter altogether due to expectations.
Consensus
The consensus expectation for NFP plays a
large role in how the markets react to the data,
with the median expectation of a group of
professional analysts serving as the decision
point. For instance, if consensus is 200k, and
the number comes out at 205k, there may not
be too much reaction to that figure as it ended
up being almost exactly what the market
anticipated. The further away from the
consensus, though, the more significant the
reaction.
Two Ways to Trade NFP
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