Trading Labour Market Data: Nonfarm Payrolls (NFP), Unemployment and Jobless Claims

What do labour market data show?

Labour market data describe how many people are employed, how many new jobs are created and how strongly wages rise. They show the state of the economy earlier than gross domestic product, which is only published quarterly. For central banks they matter twice over: as a measure of the economy and as a hint at wage pressure that can drive inflation.

Besides stable prices, the Fed explicitly has maximum employment as a goal. That is why the US employment report moves markets more than the labour market data of other countries. It usually comes out on the first Friday of the month and is one of the releases with the largest swings in currency trading.

The most important labour market data and their dates

How do you read the US employment report?

The report from the Bureau of Labor Statistics (BLS) is based on two separate surveys. The establishment survey provides the new jobs and hourly earnings, the household survey the unemployment rate and participation. Because the two measure differently, they can point in different directions in the same month.

Revisions: the second figure in the report

With each report, the new jobs of the two previous months are revised, and once a year the data are aligned with more complete statistics. A revision can cancel or amplify the current surprise. Anyone reading only the headline often gets a false picture. The BLS also states itself that the monthly change in jobs carries a statistical uncertainty of well over 100,000.

The other US labour market data

Initial jobless claims come out weekly and are the freshest figure, but also the most volatile. Many observers therefore look at the average of the last four weeks. The ADP figure estimates private-sector employment from payroll data and often differs significantly from the employment report. The number of job openings (JOLTS) shows, with a delay of a few weeks, how large the demand for workers is.

Labour market data from other countries

Outside the US, it is mainly the labour market reports from Canada, Australia and the United Kingdom that move their own currency. Canada often reports at the same minute as the US, so USD/CAD processes two reports at once. In the UK, wages count alongside the unemployment rate, because the Bank of England watches them for services inflation.

In the euro area, the unemployment rate moves markets less, because it reacts sluggishly and comes out late. In Japan the rate fluctuates little. New Zealand reports its labour market only quarterly, but then with a clear effect on the New Zealand dollar.

The chain of effects: what a labour market surprise moves

A stronger labour market than expected points to growth and wage pressure and raises rate expectations. A weaker one lowers them and stirs worries about growth.

• Bonds: short-dated yields rise after strong figures and fall after weak ones.
• Currency: strong figures tend to strengthen a currency, weak ones tend to weaken it. For the dollar the effect is often clearest against the yen and the euro.
• Stocks and indices: two forces are at work here. Strong figures help earnings but can mean higher rates; weak figures push rates down but stir recession worries.
• Gold: strong US data and a firmer dollar tend to weigh on gold, weak ones tend to support it.
• Cryptocurrencies: Bitcoin often reacts to the US employment report like other risk assets, depending on whether the market currently fears rates or growth more.

When the chain breaks

• Mixed picture: jobs above consensus but a rising unemployment rate, or many jobs with weak wages. The first move then often reverses.
• Revisions: a strong downward revision of the previous months outweighs the surprise in the current month.
• Good news, bad prices: if the market mainly fears higher rates, strong figures can push stocks lower.
• Special effects: strikes, storms or holidays distort individual months. The report often names such influences itself.

Employment report or ADP: which figure counts?

The BLS employment report is the official figure and moves prices far more. The ADP figure comes out two days earlier and is often read as a preview, but predicts the employment report only unreliably. Anyone trading ADP should expect the market to correct the direction again on Friday.

Teaching examples

The following cases are teaching examples with round numbers, not real releases, and give no price moves in pips or percent.

Teaching example 1: more jobs, but higher unemployment

Expected are 120,000 new jobs and an unemployment rate of 4.0%. Reported are 180,000 jobs, but the rate rises to 4.2%. The establishment survey shows strength, the household survey weakness. The market then looks at wages, participation and revisions to decide which figure to believe. The first move is often not the last.

Teaching example 2: weak jobs, strong wages

Only 60,000 jobs are created instead of the expected 150,000, but hourly earnings rise by 0.5% instead of 0.3%. Fewer jobs argue for rate cuts, stronger wages for persistent inflation pressure. Which figure wins depends on whether the central bank currently fears inflation or growth more.

Teaching example 3: jobless claims as a trend

Weekly initial claims rise four weeks in a row, each slightly above the consensus. No single week moves prices much. The four-week average, however, shows a turn in the labour market, and the next employment report is awaited with different eyes.

Labour market data in each trading style

For short-term traders, the US employment report is one of the most turbulent releases of the month, for long-term traders one building block in the picture of the economy.

Labour market data in scalping (15m, 30m)

In scalping on 15m and 30m, jobs Friday is one of the days when you are flat before the release. In the first minute spreads widen sharply, and because several figures come at once, the price often swings both ways. Canada frequently reports at the same minute, which makes USD/CAD particularly turbulent.

The earliest entry is after the first closed 15m candle, once it is visible which figure the market is weighting. A breakout from its range or the pullback to the breakout level are common approaches, with the stop behind the range. The data fall into the overlap of the London and New York sessions. On Friday afternoon liquidity fades, and positions over the weekend are not an issue for the scalper.

Labour market data in day trading (1h, 2h)

In day trading on 1h and 2h, the closed 1h candle after the report is the yardstick. In the afternoon the price often follows the direction that prevailed after the first hour. An entry follows the close beyond the range of the release candle, with the stop on the other side.

Before the release, the day trader reduces positions or protects them. The weekly initial claims on Thursday are usually a smaller release, but can have more effect after a series of conspicuous weeks. On Friday the day trader closes before the weekend, so a gap on Monday does not affect them.

Labour market data in swing trading (4h, 8h)

In swing trading on 4h and 8h, the employment report often falls in the middle of the holding period. The stop sits behind a real structure, and the position is sized so that a spike remains bearable. Because the report comes on a Friday, the reaction can continue as a gap into Monday.

After the release, what counts is whether the 4h and 8h candles confirm the direction. A clear surprise with revisions in the same direction can start a swing. A mixed picture of jobs, rate and wages, by contrast, often brings only a spike that is unwound in the following days.

Labour market data in position trading (12h, 1d)

In position trading on 12h and 1d, the trend over months counts: if the unemployment rate rises step by step, initial claims increase and job openings fall, the labour market is cooling. That makes rate cuts more likely and changes the broad direction of the dollar.

Single reports are milestones at this level, often distorted by revisions and special effects. The stop is far enough away that a single jobs Friday does not reach it. In the FinScans cockpit, the news situation counts for more than the technicals on the long horizon, as the methodology on horizons explains.

Labour market data and technical signals

On the day of the US employment report, technical signals around 8:30 a.m. New York time are particularly unreliable. A break of a trendline or of a support and resistance level in the first minute is often just a spike. Only the closed candle after the release shows whether it holds.

FinScans signals exist for forex and crypto pairs. They are updated candle by candle and are often closed early when the market turns, as the methodology describes. Read a signal that appeared shortly before the employment report with caution.

How to use FinScans for labour market data

In the FinScans calendar, labour market data appear in the category "Labour market", and the labour market releases in the calendar can be filtered on their own. The US employment report appears there as several rows at the same minute: new jobs, unemployment rate, hourly earnings and others. New jobs, unemployment rate, hourly earnings, initial claims, job openings and ADP in the US, as well as the labour market reports from Canada, Australia, the UK and New Zealand, carry three dots for high impact.

In the cockpit, a heads-up at the overall assessment combines the rows, and the box "Economic data for …" assesses each figure for the currency. For the unemployment rate and jobless claims, a higher figure counts as worse for the currency, for new jobs and wages as better. The same report can therefore produce one heads-up saying "supports" and one saying "weighs on". How reports about the labour market feed into the news situation is described in the methodology on the news situation.

The next labour market releases and the most recently published values from the FinScans calendar:

Hybrid checklist: what the machine reports, what you check yourself

FinScans provides the releases, the actual value of each figure and its assessment for the currency. Whether the report as a whole is strong or weak, you judge yourself, as described in hybrid trading. Around labour market data, check:

1. Does the employment report fall within my holding period, and does Canada report at the same minute?
2. Do new jobs, unemployment rate and wages point in the same direction?
3. How strongly were the previous months revised, and does that change the surprise?
4. Is the surprise larger than the statistical uncertainty of the figure?
5. Is my position small enough and my stop set so that a spike and a gap on Monday remain bearable? More on this in risk management.
6. Does the reaction fit the news situation in the cockpit and the trend of the higher timeframe?

Frequently asked questions

What are nonfarm payrolls (NFP)?

Nonfarm payrolls are the number of new jobs created in the US outside agriculture, determined from a survey of businesses and government agencies. They are published in the monthly employment report of the Bureau of Labor Statistics, usually on the first Friday of the month at 8:30 a.m. New York time. It is one of the releases that move the dollar, rates and stocks most strongly.

Why does the unemployment rate rise even though jobs are created?

Because the two figures come from different surveys. The new jobs come from the establishment survey, the unemployment rate from the household survey. Participation also plays a role: if more people look for work, the rate can rise even though jobs are created. Such mixed pictures often cause swings in both directions on jobs Friday.

How important are the weekly jobless claims?

Individually usually less than the monthly report, because the weekly figure fluctuates strongly. As a trend they are valuable: if initial claims rise over several weeks, the labour market is cooling long before the monthly report shows it. The four-week moving average smooths out the swings. They come out every Thursday at 8:30 a.m. New York time.

Why does the dollar react so strongly to labour market data?

Because, besides stable prices, the Fed has maximum employment as a goal. A strong labour market makes higher rates or rates staying high for longer more likely, a weak one makes cuts more likely. In addition, the report delivers many figures at once and often deviates clearly from the consensus. Together this makes it one of the most turbulent releases.

Sources

• U.S. Bureau of Labor Statistics: The Employment Situation, monthly release with technical notes.
• U.S. Department of Labor: Unemployment Insurance Weekly Claims, weekly release.
• Eurostat: Unemployment statistics, explanations and monthly data on unemployment in the EU.