======Nonfarm Payrolls======
Nonfarm Payrolls (often abbreviated as NFP) is one of the most-watched economic indicators in the world, essentially serving as a monthly report card for the U.S. job market. Released on the first Friday of every month by the U.S. [[Bureau of Labor Statistics]] (BLS), this report tallies the number of paid workers in the U.S. economy, excluding a few specific categories. As the name suggests, it leaves out farm employees. It also excludes private household employees, proprietors, and non-profit organization employees. What’s left is a powerful snapshot of about 80% of the U.S. workforce, covering goods, construction, and manufacturing companies. The headline number you see in the news is the net change in these jobs from the previous month. This single figure can send ripples through global financial markets because it provides a timely and broad measure of economic health, influencing everything from stock prices to the decisions made by the [[Federal Reserve]].
===== Why Is This Number Such a Big Deal? =====
Think of the NFP report as the economy's monthly check-up. More people working means more people have paychecks to spend. This increased consumer spending is the engine of economic growth, directly boosting company revenues and profits. A strong, consistent rise in payrolls is a sign of a healthy, expanding economy, which supports a [[bull market]] environment.
Conversely, a sharp decline or a consistently negative NFP number signals trouble. It means businesses are cutting back, consumers will likely tighten their belts, and a recession could be on the horizon. This directly impacts corporate earnings, which are the bedrock of stock prices. Because this report is so comprehensive and timely, investors, economists, and policymakers view it as a primary gauge of the economy's momentum and a key input for forecasting [[Gross Domestic Product]] (GDP).
===== Reading the NFP Report: More Than Just One Number =====
While the media loves to flash the single "jobs added" number, the real insight comes from looking at the whole picture. The NFP report is a rich document with several key components that tell a more nuanced story.
==== The Headline Number ====
This is the net change in jobs for the month. A positive number means jobs were created; a negative one means jobs were lost. Analysts have expectations for this number, and the market's reaction often depends on whether the actual number beats or misses those forecasts. It's also important to look at revisions to the previous two months' reports, which are released at the same time and can sometimes change the narrative completely.
==== The Unemployment Rate ====
This is presented as a percentage and measures the share of the labor force that is jobless and actively looking for work. A low unemployment rate is generally good, but context is key. Sometimes, the rate can fall for the "wrong" reason—for instance, if a large number of people get discouraged and stop looking for work, they are no longer counted as unemployed.
==== Average Hourly Earnings ====
This might be the most important number for investors focused on [[inflation]]. It tracks the change in what workers are paid per hour.
  * **Strong wage growth** is great for workers and can fuel consumer spending. However, if wages grow too quickly, it can signal inflationary pressures, which might force the Federal Reserve to raise [[interest rates]]. Rapidly rising wages can also squeeze corporate profit margins.
  * **Weak wage growth** can keep inflation in check but may also indicate a lack of dynamism in the economy and limited pricing power for workers.
==== Labor Force Participation Rate ====
This metric measures the percentage of the working-age population that is either employed or actively looking for a job. It provides crucial context for the unemployment rate. A rising participation rate, even if the unemployment rate ticks up slightly, can be a sign of optimism, as it means more people believe they can find a job.
===== How Value Investors Use NFP Data =====
For a [[value investing]] practitioner, the NFP report is not a signal to buy or sell on the first Friday of the month. The short-term market frenzy surrounding the release is the domain of traders, not long-term investors. Instead, a value investor uses the NFP data as a piece of a much larger puzzle.
  * **Understanding the Economic Climate:** Over time, the trends in NFP data help an investor gauge the overall health of the economy. A value investor wants to own great businesses, and great businesses tend to do much better in a healthy, growing economy than in a stagnant one. The NFP trend helps paint a picture of the macroeconomic environment in which their portfolio companies operate.
  * **Informing the Big Picture:** A consistently strong labor market, especially with healthy wage growth, supports the long-term earnings power of companies. It tells you that the fundamental demand for goods and services is likely to remain robust. Conversely, a weakening trend can be an early warning sign, prompting a deeper look at the resilience of the companies you own during a potential downturn or [[bear market]].
  * **Clues on Interest Rates:** The NFP report heavily influences the Federal Reserve's policy on interest rates. A "too hot" report (very high job growth and soaring wages) might lead the Fed to raise rates to fight inflation. Higher rates make it more expensive for companies to borrow and can lower stock valuations (as future cash flows are worth less today in a [[Discounted Cash Flow]] model). A "too cold" report might signal future rate cuts. Understanding this dynamic helps an investor anticipate shifts in the broader financial landscape.