The Bureau of Labor Statistics releases economic data concerning the job markets in the United States, including data about nonfarm payroll and the unemployment rate. The nonfarm-payroll report focuses on the number of private jobs added in the previous month, and the unemployment rate focuses on the percentage of workers without employment. Although both reports are important indicators of the state of the economy, they speak of different things. However, as it relates to jobs, nonfarm payroll shows how many workers who are not on farms have jobs, and unemployment shows how many workers do not have jobs. In an effort to make wise financial choices, investors should understand the effects of nonfarm payroll numbers and unemployment on the financial markets.
Understanding Nonfarm Payroll
Nonfarm payroll is an economic figure released by the BLS indicating how many jobs the United States added in particular sectors. The statistical data released excludes jobs in the farming industry because of seasonal employment changes in the industry. The BLS releases its findings on the first Friday of every month, which shows data from the previous month. Economists and investors use the nonfarm-payroll reports as a current and future indicator of the health of the economy.
Nonfarm Payroll Effects on the Financial Markets
The information presented in the nonfarm-payroll report affects the economy and financial markets. A growth in jobs indicates that companies are growing and hiring additional workers. Employment growth is an indicator of a healthy economy. The nonfarm-payroll report shows exactly which sectors added jobs. Investors use this information to make trades in industries they feel are expanding and becoming profitable. In some cases, the BLS releases revised employment data. The revised data can adversely affect the markets if jobs grew at a slower pace than indicated in the initial report.
In contrast to the nonfarm-payroll report, the unemployment rate calculated by the BLS shows the number of workers without jobs. The unemployment data only include people without jobs who are looking for work. Those not looking for work are not considered a part of the labor force. To calculate the percentage of workers who are unemployed, divide the number of unemployed workers by the total labor force and multiply the number by 100 percent. The total labor force is calculated by adding the number of unemployed workers and the number of employed workers.
Unemployment Effects on the Economy
The unemployment rate directly affects the United States economy, which is consumer driven. Prolonged unemployment leads to a decrease in production, which results in a decline in the gross domestic product level. Many unemployed individuals experience financial and psychological effects due to the loss in income. Unemployed workers typically reduce their spending, which adversely affects many businesses if many workers are unemployed. If high levels of unemployment persist, the federal government may choose to take steps to boost the economy and spur job growth.