NFP Meaning: What is NFP (Nonfarm Payroll)?

Nonfarm Payrolls (NFPs) rank among the most influential economic indicators in global financial markets, alongside the Consumer Price Index (CPI), Gross Domestic Product (GDP), and Purchasing Managers' Index (PMI). As the world's largest economy, shifts in US employment directly impact currency valuations, central bank policies, and investor sentiment across global markets. Understanding NFP data is essential for traders seeking to navigate market volatility and capitalise on economic trends.

This comprehensive guide explains what Nonfarm Payrolls measure, why they matter, how they affect different asset classes, and proven strategies for trading around NFP releases.

TL;DR: Key Takeaways

• Nonfarm Payrolls (NFPs) measure monthly US employment changes excluding farming, government, non-profit, and private household sectors*

• Released on the first Friday of each month at 8:30 AM Eastern Time (1:30 PM GMT) by the Bureau of Labor Statistics

• NFPs represent approximately 80% of US GDP contributors, making them one of the most comprehensive labor market indicators

• Strong NFP data typically strengthens the US dollar and may prompt the Federal Reserve to increase interest rates to control inflation

• Weak NFP readings can weaken the dollar and encourage more accommodative monetary policy from the Fed Major Forex pairs affected: EUR/USD, GBP/USD, USD/JPY, AUD/USD experience the highest volatility during releases

• Three critical components: headline employment number, unemployment rate, and average hourly earnings Market volatility peaks within 15 minutes of release, with spreads widening 3-5x normal levels

Nonfarm Payrolls Definition: What Is NFP?

The Nonfarm Payroll report represents a comprehensive, survey-based measurement of employed workers in the United States. Each month, on the first Friday following data collection, the Bureau of Labor Statistics (BLS) publishes the NFP figures, which count the number of paid employees across various sectors of the US economy.

The report's name derives from what it excludes rather than what it includes. NFP data does not count:

• Farm workers and agricultural employees

• Government employees (federal, state, and local)

• Private household employees

• Employees of non-profit organisations

• Active military personnel

According to the Bureau of Labor Statistics, the workers included in NFP calculations represent approximately 80% of all contributors to the United States' Gross Domestic Product. This extensive coverage makes NFPs one of the most reliable gauges of overall economic health.

The BLS collects data from approximately 145,000 businesses and government agencies, covering roughly 697,000 individual worksites. This massive sample size ensures statistical reliability whilst providing detailed breakdowns across different sectors and regions. (Source: BLS.gov)

Why NFP Matters: Impact on Markets and Central Banks

Economic Health Barometer

Nonfarm Payrolls function as a primary indicator of economic vitality for several critical reasons:

• Employment is a lagging indicator: Whilst often described as coincident, employment data reflects business confidence and recent economic conditions. Companies hire when they anticipate sustained demand and fire during downturns, making NFPs valuable for confirming economic trends.

• Consumer spending correlation: Employment directly influences consumer spending power, which accounts for approximately 70% of the US GDP. Rising employment typically translates to increased household income and spending capacity.

• Forward-looking implications: Beyond current employment levels, NFP data influences expectations about future economic performance, inflation pressures, and monetary policy direction.

• Federal Reserve Policy Influence: The Federal Reserve maintains a dual mandate: maximum employment and stable prices (approximately 2% inflation). NFP data directly informs both objectives.

• Strong NFP readings (significantly above 200,000 jobs added) can signal:

- Tight labor markets that may drive wage inflation - Economic strength that might require a tighter monetary policy - Potential interest rate increases to prevent overheating

• Weak NFP readings (below 100,000 jobs added) may indicate:

- Economic weakness requiring support - Reduced inflation pressures - More dovish monetary policy stance

However, the relationship isn't always straightforward. For example, during 2022-2023, the powerful NFP numbers, with monthly additions exceeding 300,000, raised concerns about persistent inflation, prompting the Fed to maintain aggressive rate increases despite robust job growth.

• Market Volatility Driver: NFP releases create the single largest predictable volatility event in the Forex market. According to research from the Bank for International Settlements, currency market volatility typically increases 400-600% during the 15 minutes following NFP releases. (Source: Bis)

This volatility affects:

• Forex pairs: Particularly the USD-denominated pair

• Equity indices: US indices like the S&P 500 and Nasdaq 

• Commodities: Especially Gold (XAU) and oil

Bond markets: Treasury yields respond directly to employment data

Understanding NFP Components: Employment, Wages, and Revisions

A comprehensive NFP report contains several crucial elements that traders must analyse together:

1. Headline Nonfarm Payrolls Number

The headline figure represents the net change in employed workers from the previous month. This number receives the most immediate market attention.

Interpretation guidelines:

• Above 200,000: Generally considered strong job growth

• 150,000-200,000: Healthy, sustainable growth rate

• 100,000-150,000: Modest growth, potentially concerning if sustained

• Below 100,000: Weak growth that may signal economic problems

• Negative numbers: Job losses indicate recession or severe economic stress

2. Unemployment Rate

The percentage of the labor force actively seeking employment but unable to find work. This rate can move independently of headline NFP numbers.

*Important context: The unemployment rate can fall for both positive reasons (people finding jobs) and negative reasons (discouraged workers leaving the labor force). Traders must examine labor force participation rates alongside unemployment figures.

3. Average Hourly Earnings

Measures wage growth month-over-month and year-over-year. This component directly indicates inflation pressures.

Why it matters: Wage inflation is "sticky.” Once wages rise, they rarely decline, making this a critical inflation indicator for the Federal Reserve. Strong wage growth above 4-5% annually can prompt more aggressive monetary tightening.

4. Labor Force Participation Rate

The percentage of working-age adults who are either employed or actively seeking employment. This contextualises the unemployment rate.

A declining participation rate might explain a falling unemployment rate without genuine economic improvement; people simply stop looking for work.

5. Previous Month Revisions

The BLS revises the previous two months' data with each new release. These revisions can be substantial, sometimes exceeding 50,000 jobs, and significantly alter the economic narrative.

Example: A seemingly weak 150,000 jobs headline might be accompanied by upward revisions of +30,000 and +25,000 for the previous two months, effectively adding 205,000 jobs total, a much stronger picture.

NFP Release Schedule: Dates and Times for 2025-2026

The Bureau of Labor Statistics publishes NFP data on the first Friday of each month at 8:30 AM Eastern Time (1:30 PM GMT / 3:30 PM Israel Time). The report reflects employment data from the pay period, including the 12th day of the previous month.

NFP Trading: Most Volatile Forex Pairs and Instruments

Primary USD Forex Pairs

NFP releases create the most significant impact on major currency pairs involving the US dollar:

EUR/USD

The world's most traded currency pair typically experiences movements of 50-150 pips in the first 15 minutes following the release of NFPs. Strong US employment data generally strengthens the dollar, pushing EUR/USD lower, whilst weak data supports Euro gains.

GBP/USD

Known as "Cable," this pair shows similar volatility to EUR/USD. The Bank of England's policy stance relative to the Fed amplifies or dampens reactions depending on UK economic conditions.

USD/JPY

Often exhibits the strongest directional moves as the Japanese Yen serves as a safe-haven currency. Strong NFP data typically strengthens the USD against the JPY, while weak data can lead to rapid JPY appreciation.

AUD/USD 

As a commodity currency, the Australian dollar's reaction to NFP data reflects both direct USD strength/weakness and implications for global growth and commodity demand.

Impact on Other Asset Classes

US Equity Indices: 

The relationship between NFP data and equity markets is nuanced:

• Goldilocks scenario: Moderate job growth (150,000-200,000) often supports equities, enough growth to sustain earnings without triggering aggressive Fed tightening

• Too hot: Exceptionally strong NFPs (>300,000) can pressure equities due to inflation concerns and anticipated rate increases

• Too cold: Weak NFPs (<100,000) may support equities through dovish policy expectations, but raise recession concerns

Commodities: 

• Gold: Typically moves inversely to the dollar. Strong NFP data often pressures gold prices lower, whilst weak data supports gold as both a haven and inflation hedge.

• Oil: Shows mixed reactions depending on whether employment strength signals robust demand (positive for oil) or whether dollar strength dominates (negative for dollar-denominated commodities)

Treasury Bonds:

Strong NFP data typically pushes Treasury yields higher (bond prices lower) as markets price in future Fed tightening and reduced recession risks.

Historical NFP Data: Recent Trends and Analysis

2023-2024 Employment Trends

The post-pandemic period has featured unusually robust NFP numbers, with monthly averages exceeding 200,000 jobs through 2023, despite the Federal Reserve's aggressive rate increases. This strength surprised economists who had anticipated a significant cooling of the labor market.

Notable patterns:

• 2023 average: Approximately 225,000 jobs per month

• Consistent upward revisions: Previous months frequently revised higher, indicating the BLS initially underestimated job growth

• Wage pressure persistence: Average hourly earnings remained elevated at 4-5% year-over-year, complicating the Fed's inflation fight

• Sectoral shifts: Strong gains in healthcare, leisure/hospitality, and professional services offset weakness in manufacturing and technology

Surprising NFP Releases and Market Reactions

• March 2023 Example: The release showed 236,000 jobs added, versus expectations of 239,000, resulting in a modest miss. However, the unemployment rate fell to 3.5% from 3.6%, and average hourly earnings rose by 0.3% per month. Markets initially sold dollars on the headline miss but reversed within 30 minutes as traders digested the full report's strength.

• September 2024 Example: The unexpected addition of 336,000 jobs (versus the expected 170,000) sent Treasury yields soaring and initially pressured equity markets. The dollar gained 1.2% against the Euro in a single session. However, subsequent revisions lowered the figure to 297,000, illustrating the importance of monitoring data updates.

NFP vs Other Economic Indicators: Comparing Key Metrics

NFP vs Consumer Price Index (CPI)

Nonfarm Payrolls:

• Released monthly, first Friday

• Measures employment changes

• Leading indicator of economic strength

• Indirectly influences inflation through wage pressures

Consumer Price Index:

• Released monthly, mid-month

• Directly measures inflation

• More immediate impact on monetary policy when inflation is the primary concern

• Includes housing, food, energy, and services prices

Trading consideration: When inflation is elevated (as in 2022-2023), CPI often has a greater immediate market impact than NFPs. When growth is the primary concern (as in typical recessions), NFPs dominate.

NFP vs Gross Domestic Product (GDP)

Nonfarm Payrolls:

• Monthly frequency provides timely updates

• Specific to labor market conditions

• More volatile month-to-month

Gross Domestic Product:

• Quarterly releases with monthly updates

• Comprehensive economic output measure

• Smoother, less volatile

• Includes consumer spending, investment, government spending, and net exports

Relationship: Strong NFP trends typically correlate with positive GDP growth, but the connection isn't perfect. Productivity gains can drive GDP growth even with modest increases in employment.

NFP vs Purchasing Managers' Index (PMI)

Nonfarm Payrolls:

• Backward-looking (reports previous month's data)

• Complex data based on actual payroll counts

• Government-produced, standardised methodology

PMI:

• Forward-looking (surveys about future expectations)

• Soft data based on sentiment

• Private sector surveys (ISM, S&P Global)

• Includes manufacturing and services components

Trading consideration: PMI data releases before NFPs and can provide clues about employment trends, as the employment component of PMI surveys previews hiring intentions.

NFP Trading Strategies: How to Trade Employment Data

Pre-Release Preparation

Successful NFP trading begins well before the 8:30 AM release:

1. Review consensus expectations: Understand what economists predict for headline NFP, unemployment rate, and average hourly earnings. Markets often price in expectations before releases.

2. Check positioning: Review Commitments of Traders (COT) reports to understand speculative positioning in currency futures.

3. Identify key technical levels: Note significant support and resistance levels in pairs you're monitoring. NFP-driven moves often respect or break these levels decisively.

4. Understand policy context: Where is the Federal Reserve in its rate cycle? Hawkish or dovish? The same NFP number can have different implications depending on the broader policy environment.

Trading Approaches

Strategy 1: Fade the Initial Move

Concept: Markets often overreact in the immediate 2-5 minutes following releases. This strategy involves waiting for the initial spike and trading the reversal.

Execution:

• Wait 5-10 minutes for the initial volatility to settle

• Look for candlestick reversal patterns on 5-minute charts

• Enter counter to the initial move with tight stops

• Target a return to pre-release levels or 50% retracement

Best conditions: When the headline number roughly matches expectations, but initial market reaction seems excessive.

Risk: Genuine trends can continue well beyond their initial spikes.

Strategy 2: Breakout Trading

Concept: Use NFP volatility to trade breakouts of established ranges or technical levels.

Execution:

• Identify key support/resistance ahead of time

• Wait for NFP data to break these levels decisively

• Enter in the direction of the breakout

• Use previous support/resistance as stops

• Target the next significant technical level

Best conditions: When NFP data significantly beats or misses expectations, and technical setups are clear and well-defined.

Risk: False breakouts are common during high volatility.

Strategy 3: Straddle Options Approach (For Options Traders)**

Concept: Buy both call and put options before the release to profit from volatility regardless of direction.

Execution:

• Purchase at-the-money call and put options on currency pairs

• Enter 24-48 hours before release

• Exit profitable leg quickly post-release

• Manage losing a leg or let it expire

Best conditions: When implied volatility is relatively low before the release.

Risk: If the move isn't large enough, both options may lose value due to premium decay.

Strategy 4: Wait-and-Watch

Concept: Avoid trading during the immediate volatility and wait for a clear directional bias to emerge.

Execution:

• Observe the initial reaction without taking positions

• Wait 30-60 minutes for volatility to normalise

• Analyse which currency pairs show the strongest follow-through

• Enter with-trend positions on pullbacks

• Use standard risk management

Best conditions: Best for less experienced traders or when market conditions are especially uncertain.

Risk: Missing the most significant moves of the day.

Risk Management for NFP Trading

NFP releases create exceptional volatility that demands careful risk management:

• Position sizing: Reduce position sizes by 50-75% compared to normal trading due to increased volatility and slippage risk.

• Spread widening: Accept that spreads will widen 3-5x normal levels during releases. This increases trading costs and can trigger stops unexpectedly.

• Slippage awareness: Market orders during NFP releases may fill at prices far from the intended ones. Use limit orders when possible.

• Avoid overleveraging: The temptation to capitalise on large moves can lead to excessive leverage. Maintain conservative leverage ratios.

• Stop-loss discipline: Set stops wider than usual to account for volatility, but adhere to them strictly. "Hoping" through NFP volatility is dangerous.

Common NFP Trading Mistakes to Avoid

1. Trading Immediately at Release

The first 2-3 minutes following NFP releases feature the worst liquidity conditions of the month. Price gaps, spreads widen dramatically, and fills can be unpredictable. Even experienced traders often wait for initial volatility to settle.

2. Ignoring the Full Report

Headline NFP numbers don't tell the complete story. In March 2024, a seemingly weak headline was offset by substantial revisions and wage growth. Traders who sold dollars immediately on the headline later reversed their positions at a loss.

Best practice: Take 5-10 minutes to review all components before committing capital.

3. Overtrading

NFP volatility creates numerous apparent opportunities, tempting traders to enter multiple positions. This typically leads to overexposure and poor decision-making under pressure.

Best practice: Plan a maximum of two trades around NFP releases and stick to the plan.

4. Forgetting Correlation Effects

NFP data affects multiple instruments simultaneously. Taking correlated positions (such as long USD/JPY and short EUR/USD) doubles dollar exposure without providing diversification benefits.

5. Neglecting Scheduled Fed Communications

If an NFP release occurs near Federal Reserve speeches or FOMC meetings, its effects can be magnified or dampened depending on the policy outlook. Always check the economic calendar for nearby high-impact events. (Source: Research St. Louis Fed)

How the Federal Reserve Uses NFP Data in Monetary Policy

The Dual Mandate Framework

The Federal Reserve operates under a Congressional mandate to pursue:

1. Maximum employment

2. Price stability** (interpreted as ~2% inflation)

NFP data directly informs the employment half of this mandate. However, the Fed's reaction to NFP data depends on where the economy stands:

• During normal conditions, the Fed views 150,000-200,000 monthly job additions as consistent with maximum employment without overheating.

• During high inflation (2022-2023): Strong NFP numbers above 250,000-300,000 suggested labor market tightness that could perpetuate wage inflation, supporting continued rate increases even though employment was strong.

• During recessions, the Fed focuses on employment growth as the priority, tolerating higher inflation risks to support job creation.

Policy Examples

• 2020 Pandemic Response: Unprecedentedly negative NFP readings in March and April 2020 (over 20 million jobs lost) prompted the fastest and most aggressive Fed easing in history. Rates were cut to zero, and massive quantitative easing was initiated within weeks.

• 2023 Rate Decisions: Despite consistently strong NFP releases, averaging 225,000 jobs per month, the Federal Reserve continued to raise rates through July 2023. Chair Jerome Powell repeatedly cited the "tight labor market," as evidenced by NFP data, as a reason inflation remained elevated and further tightening was necessary.

Forward Guidance Connection

• The Fed uses NFP trends to inform its forward guidance, which is its communication about future policy intentions. Sustained strong NFPs shift guidance toward tightening, whilst weakening trends signal potential easing.

• Trader application: Monitor not just individual NFP releases but three-month moving averages to identify trends the Fed considers most important. Single-month anomalies rarely lead to policy changes, but sustained shifts do. (Source: Federal Reserve)

Conclusion

Nonfarm Payrolls represent one of the most influential economic indicators for traders across all asset classes. Understanding what NFPs measure, how to interpret the full report beyond headline numbers, and how employment data shapes Federal Reserve policy provides a significant informational advantage.

Successful NFP trading requires:

• Preparation: Review forecasts, understand policy context, and identify technical levels before releases

• Patience: Avoid impulsive trading during extreme initial volatility

• Comprehensive analysis: Examine all report components, including revisions, unemployment rate, and wage data

• Risk discipline: Use appropriate position sizing and stop-losses given exceptional volatility

• Strategic flexibility: Adapt approaches based on whether you trade immediate reactions, fades, breakouts, or post-release trends

Whether you actively trade NFP releases or simply monitor them to understand broader market dynamics, these monthly reports offer invaluable insights into economic health, policy directions, and market sentiment that inform all trading decisions.

For traders seeking to navigate NFP volatility effectively, Plus500 offers access to major Forex pairs, indices, and commodities that are affected by employment data, along with risk management tools essential for high-volatility events.

*Past performance does not reflect future results. The above are only projections and should not be taken as investment advice.