What Is Nonfarm Payrolls?
Nonfarm payrolls (NFP) represent the total number of paid employees in the United States, excluding farm employees, private household employees, and non-profit organization employees. This key economic indicator falls under the broader category of macroeconomics and provides crucial insight into the health and direction of the U.S. labor market. The data is compiled and released monthly by the Bureau of Labor Statistics (BLS) as part of its Employment Situation Summary, serving as one of the most closely watched economic indicators globally.
History and Origin
The collection of employment data by the Bureau of Labor Statistics has roots stretching back to 1915, when it first began gathering employment and payroll information for manufacturing industries. Significant milestones in the evolution of the Current Employment Statistics (CES) program, which produces the nonfarm payrolls data, include the expansion of covered industries and the adoption of unemployment insurance (UI) employment data as a primary benchmark source after the Social Security Act of 1935. By 1936, the BLS published an estimate of nonfarm wage and salary employment at the national level for the first time. The program has continuously adapted to technological advancements and statistical methodologies, reflecting evolving user demands over time.14 Today, the Current Employment Statistics program surveys a vast number of businesses and government agencies each month to produce detailed industry estimates.13
Key Takeaways
- Nonfarm payrolls measure the total number of paid U.S. workers, excluding agricultural, private household, and non-profit organization staff.
- The data is released monthly by the Bureau of Labor Statistics and is a significant indicator of labor market strength and economic activity.
- The report's release often causes substantial volatility in financial markets due to its implications for monetary policy and economic growth.
- It influences decisions made by the Federal Reserve regarding interest rates and is closely watched by investors, analysts, and policymakers.
- Revisions to previously reported nonfarm payrolls figures can occur, sometimes significantly altering market perceptions.
Interpreting the Nonfarm Payrolls
The nonfarm payrolls report is a critical barometer of the U.S. economy. A strong increase in nonfarm payrolls generally indicates a healthy and expanding economy, suggesting that businesses are hiring, which can lead to increased consumer spending and overall economic growth. Conversely, a weak or negative nonfarm payrolls figure can signal a slowing economy or even a recessionary environment, as it indicates job losses or a lack of job creation.
Policymakers, particularly the Federal Reserve, pay close attention to nonfarm payrolls as it directly impacts their assessment of maximum employment, one half of their dual mandate alongside price stability. The report's strength can influence the Fed's stance on monetary policy, including decisions on interest rates. A robust nonfarm payrolls report might suggest the economy can withstand higher interest rates, while a weak report could prompt the Fed to consider easing monetary conditions.
Hypothetical Example
Consider a hypothetical scenario where the U.S. economy has been experiencing sluggish growth. Analysts are eagerly awaiting the monthly nonfarm payrolls report. The consensus forecast is for an increase of 100,000 jobs.
When the report is released, it shows nonfarm payrolls increased by 250,000 jobs in the previous month. This significant beat of expectations would likely be interpreted as a strong positive signal for the economy. It suggests that businesses are confident enough to expand their workforce, which could lead to greater consumer spending and further economic expansion. In this scenario, market participants might anticipate that the Federal Reserve would have more room to consider tightening monetary policy, perhaps by raising interest rates, if inflation concerns are also present.
Practical Applications
Nonfarm payrolls data is widely used across various sectors of finance and economics. Investors, traders, and analysts use the report to gauge economic health, anticipate central bank actions, and make investment decisions. For instance, a stronger-than-expected nonfarm payrolls report can lead to a rally in the U.S. dollar, as it may signal a higher likelihood of interest rate hikes, making dollar-denominated assets more attractive. Conversely, a weaker report can lead to dollar depreciation.
The data also provides insights into specific industry trends. For example, the June 2025 report indicated job gains in state government and healthcare sectors, while the federal government continued to lose jobs.12 This granular detail helps analysts understand which parts of the economy are expanding or contracting. The Federal Open Market Committee (FOMC) regularly discusses nonfarm payrolls when assessing the economic situation and forming monetary policy.11 Federal Reserve Chair Jerome Powell has highlighted the importance of a strong labor market in achieving price stability without sharp increases in unemployment, underscoring how nonfarm payrolls data informs the Fed's strategy to balance its dual mandate.10 Furthermore, the report’s impact extends to commodities and equities, often leading to immediate market movements following its release. F9or example, a strong nonfarm payrolls figure might signal increased demand and a stronger Gross Domestic Product outlook, potentially boosting equity markets.
Limitations and Criticisms
While nonfarm payrolls are a vital economic indicator, they are not without limitations and criticisms. One significant aspect is the potential for revisions. The initial release is based on preliminary data and is subject to revisions in subsequent months as more comprehensive information becomes available. These revisions can sometimes be substantial, altering the initial market reaction and economic interpretation. For example, the change in total nonfarm payroll employment for April 2025 was revised up by 11,000, and May 2025 was revised up by 5,000, as reported in July 2025.
8Additionally, the survey methodology, which collects data from establishments, may not fully capture the nuances of the labor force. For instance, it might not fully account for individuals who are underemployed or those who have left the labor force due to discouragement. Economic letters from the Federal Reserve Bank of San Francisco have explored challenges in accurately measuring employment statistics, particularly during periods of economic volatility, suggesting that official unemployment statistics may sometimes understate the true magnitude of labor market shifts. S7ome economists also discuss "labor hoarding," where businesses might be reluctant to lay off workers even during slower economic periods, preferring to adjust hours rather than headcount, which can obscure the true underlying weakness in the labor market. T6hese factors mean that while nonfarm payrolls provide a critical snapshot, they should be considered alongside other indicators to form a complete picture of the business cycles and economic health, as well as the effects of fiscal policy.
Nonfarm Payrolls vs. Unemployment Rate
Nonfarm payrolls and the unemployment rate are both key measures of the U.S. labor market, but they capture different aspects. Nonfarm payrolls measure the number of jobs added or lost in the non-agricultural sectors, indicating job creation or destruction. It is derived from the Current Employment Statistics (CES) program, also known as the establishment survey, which surveys approximately 141,000 businesses and government agencies.
5In contrast, the unemployment rate measures the percentage of the labor force that is unemployed but actively seeking employment. This data comes from the Current Population Survey (CPS), also known as the household survey, which surveys about 60,000 U.S. households., 4T3he unemployment rate considers individuals' employment status, regardless of whether a new job was created or an existing one was filled. While both tend to move in the same direction, reflecting the overall health of the labor market, discrepancies can arise. For example, the nonfarm payrolls could show job gains, but if more people are entering the workforce (increasing the labor force participation rate), the unemployment rate might remain stagnant or even tick up. Conversely, the unemployment rate could fall if discouraged workers leave the labor force, even if job creation (nonfarm payrolls) is slow. The recent rise in unemployment, for example, has been partially attributed to a fall in the job-finding rate.
2## FAQs
What industries are excluded from nonfarm payrolls?
Nonfarm payrolls specifically exclude employment in agriculture, private households (such as domestic workers), and non-profit organizations. It focuses on the business and government sectors, providing a clearer picture of commercial and public-sector job growth.
How often is the nonfarm payrolls report released?
The nonfarm payrolls report is typically released on the first Friday of each month by the Bureau of Labor Statistics, covering the employment situation for the preceding month.
Why is the nonfarm payrolls report so important to financial markets?
The nonfarm payrolls report is a highly influential economic indicator because it provides a timely and comprehensive snapshot of U.S. job growth, which is a significant driver of economic growth and inflation. Its impact on the Federal Reserve's monetary policy decisions, particularly regarding interest rates, makes it a major market mover across equities, bonds, commodities, and currencies.
Can nonfarm payrolls be negative?
Yes, nonfarm payrolls can be negative. A negative figure indicates that the economy lost jobs during the reporting period rather than gaining them. This is typically a sign of economic contraction or a recession. For example, nonfarm payrolls reached a record low of -20,471,000 in April 2020 during the COVID-19 pandemic.
1### Does nonfarm payrolls include self-employed individuals?
No, the nonfarm payrolls report counts only paid employees on establishment payrolls. It does not include self-employed individuals, independent contractors, or unpaid family workers. These categories are typically captured in the separate household survey, which contributes to the calculation of the unemployment rate.