What Is Nonfarm Payroll Employment?
Nonfarm payroll employment refers to the total number of paid employees in the United States, excluding those in the agricultural sector, private households, and nonprofit organizations, as well as self-employed individuals and active military personnel. This key economic indicator falls under the broader category of macroeconomics. The data is collected and released monthly by the U.S. Bureau of Labor Statistics (BLS) as part of its comprehensive Employment Situation Summary, often referred to as the jobs report37. Nonfarm payroll employment figures are closely watched by economists, policymakers, and investors alike for insights into the health of the labor market and the overall economy35, 36.
History and Origin
The collection of nonfarm payroll employment data by the U.S. Bureau of Labor Statistics (BLS) has a long history, evolving to become one of the most significant monthly economic releases. The BLS began collecting employment data through its Current Employment Statistics (CES) program, also known as the establishment survey, to provide insights into the nation's workforce. The exclusion of farm workers dates back to early America, primarily due to the highly seasonal nature of agricultural employment and the complexities in accurately capturing data from self-employment, unpaid family labor, and undocumented workers in the farming sector34. This historical distinction has allowed for a more consistent measure of employment trends in the non-agricultural sectors that dominate the modern economy. The ongoing collection and refinement of this data play a crucial role in understanding economic shifts and informing policy decisions.
Key Takeaways
- Nonfarm payroll employment measures the total number of paid U.S. workers, excluding agriculture, private households, and certain other categories.
- It is a vital economic indicator, providing insight into the strength of the labor market and the broader economy.
- The data is released monthly by the U.S. Bureau of Labor Statistics (BLS) in the Employment Situation Summary.
- Nonfarm payroll figures significantly influence financial markets, including the stock market, bond market, and currency values, and are closely watched by the Federal Reserve.
- The report helps economists and policymakers assess inflation pressures and potential shifts in monetary policy.
Interpreting the Nonfarm Payroll Employment
Nonfarm payroll employment data is a crucial gauge of economic activity. An increase in nonfarm payrolls generally signals a growing economy, as more jobs typically lead to higher consumer spending and overall economic expansion33. Conversely, a decrease suggests a cooling or contracting economy, which could indicate a potential recession or economic slowdown. Analysts look not only at the headline number of jobs added or lost but also at the revisions to previous months' data, as these can significantly alter the perceived trend in employment growth31, 32.
The data is often viewed in conjunction with other components of the Employment Situation Summary, such as the unemployment rate and average hourly earnings29, 30. For instance, strong job growth accompanied by rising wages might signal inflationary pressures, potentially leading the Federal Reserve to consider raising interest rates28. Conversely, weak job growth combined with stagnant wages could prompt the Fed to maintain or even lower rates to stimulate economic activity. The industry breakdown within the nonfarm payroll report also provides valuable insights, highlighting which sectors are expanding or contracting26, 27.
Hypothetical Example
Imagine the U.S. Bureau of Labor Statistics (BLS) releases its monthly Employment Situation Summary for June 2025. The report states that nonfarm payroll employment increased by 147,000 jobs25. This figure comes in above the market consensus forecast of 111,000 new jobs24.
Upon this release, market participants would likely interpret this as a sign of a stronger-than-expected labor market. Investors in the stock market might react positively, anticipating increased consumer demand and corporate profits. The U.S. Dollar could strengthen as a robust jobs report might lead to expectations of the Federal Reserve maintaining a hawkish stance to combat potential inflation23. Conversely, if the actual number had been significantly lower than the forecast, say only 50,000 jobs added, it would likely be viewed as a sign of economic weakening, potentially leading to a sell-off in stocks and a weaker dollar. This example demonstrates how the nonfarm payroll employment number directly influences market sentiment and financial asset pricing.
Practical Applications
Nonfarm payroll employment data serves as a critical input for various financial and economic applications. One primary use is in monetary policy formulation by central banks like the Federal Reserve. The Fed closely monitors nonfarm payrolls to assess the strength of the labor market, which is a key component of its dual mandate of maximizing employment and maintaining price stability21, 22. A persistently strong labor market, as indicated by robust nonfarm payroll growth, might lead the Fed to consider tightening monetary policy to prevent inflation from accelerating20.
Beyond monetary policy, nonfarm payroll figures are essential for economic forecasting. Analysts use the data to project future trends in consumer spending, corporate earnings, and overall Gross Domestic Product (GDP). For instance, a sustained period of healthy nonfarm payroll additions can signal a positive outlook for sectors like retail and manufacturing, influencing investment decisions by portfolio managers. Furthermore, businesses utilize this data for strategic planning, such as hiring decisions and expansion plans, as it provides a broad overview of the national labor supply and demand. This data is regularly reported and analyzed by financial news outlets, such as The New York Times, highlighting its real-world significance in economic discourse.
Limitations and Criticisms
While nonfarm payroll employment is a widely cited and influential economic indicator, it has several limitations and faces criticisms. One significant critique revolves around its exclusion of certain worker categories. As the name suggests, it omits farm workers, but it also excludes self-employed individuals, private household employees, and those working in nonprofit organizations19. This means that a substantial portion of the labor force, particularly the growing gig economy and small business owners, is not directly captured in the headline figure.
Another limitation is the potential for significant revisions to the initially reported numbers. The Bureau of Labor Statistics (BLS) frequently revises the nonfarm payroll data in subsequent months as it receives more complete information from surveyed businesses17, 18. These revisions can sometimes be substantial, altering the perceived strength or weakness of the labor market retroactively and potentially leading to market volatility based on initial, incomplete data15, 16. For instance, a strong initial report might be revised downward, indicating a weaker labor market than first thought, which can influence investor sentiment and policy expectations.
Additionally, the raw nonfarm payroll data is subject to seasonal adjustments to account for predictable fluctuations, such as holiday hiring13, 14. While necessary for trend analysis, some critics argue that these adjustments can occasionally distort the underlying picture, especially during periods of unusual economic activity or significant disruptions. The sample size, though large, also presents a potential for sampling error, as with any survey-based data collection12. These factors highlight the importance of viewing nonfarm payroll employment in conjunction with other labor market indicators and considering the possibility of future revisions when assessing economic conditions.
Nonfarm Payroll Employment vs. Household Survey Employment
Nonfarm payroll employment, derived from the establishment survey, and household survey employment are two distinct yet complementary measures of the U.S. labor market, both published by the Bureau of Labor Statistics (BLS). The primary difference lies in their methodology and coverage.
The nonfarm payroll employment data is collected through the establishment survey, which surveys approximately 121,000 businesses and government agencies, representing about 631,000 individual worksites11. This survey counts the number of paid jobs on company payrolls, excluding farm workers, self-employed individuals, private household workers, and some nonprofit employees10. It provides detailed information on employment by industry, hours worked, and average hourly earnings9.
In contrast, the household survey gathers data from about 60,000 eligible households nationwide8. This survey counts individuals as employed if they worked at all as paid employees, in their own business, or without pay in a family business, and includes farm jobs7. The key output of the household survey is the unemployment rate, and it also provides demographic breakdowns of employment and unemployment, as well as the labor force participation rate6.
Confusion often arises because both aim to measure employment but can report different figures due to their distinct methodologies, coverage, and the types of questions asked. The nonfarm payroll data typically gets more attention for gauging job creation trends, while the household survey is crucial for understanding individual employment status and broader labor force dynamics.
FAQs
What does "nonfarm" mean in nonfarm payroll employment?
"Nonfarm" means that the employment figures exclude workers in the agricultural sector. This exclusion is due to the seasonal nature of farm work and the difficulty in accurately tracking employment among self-employed farmers and unpaid family workers5.
Who collects the nonfarm payroll data?
The nonfarm payroll employment data is collected by the U.S. Bureau of Labor Statistics (BLS) through its Current Employment Statistics (CES) program, also known as the establishment survey4.
How often is the nonfarm payroll report released?
The nonfarm payroll report, which is part of the Employment Situation Summary, is typically released monthly, usually on the first Friday of each month2, 3.
Why is nonfarm payroll employment important for investors?
Nonfarm payroll employment is crucial for investors because it is a leading indicator of economic health. Strong job growth often signals increased consumer spending, which can boost corporate earnings and positively impact the stock market. It also influences expectations for Federal Reserve monetary policy, affecting bond yields and currency values1.
Does nonfarm payroll include self-employed individuals?
No, nonfarm payroll employment specifically excludes self-employed individuals, as well as private household employees, active military personnel, and workers in nonprofit organizations. The data primarily focuses on paid employees on business and government payrolls.