The United States has the world’s largest economy and is projected to hold this status for years to come. It’s an economy that investors and business owners around the world watch intently. The COVID-19 pandemic has dealt businesses across the country a serious blow, with each state implementing its own plans to get its economy back up and running. This has somewhat muddied the waters when it comes to tracking the economic health of the nation.
The nonfarm payroll is a reliable metric that can give business owners and investors a useful insight into the country’s economic health by tracking employment data. Here, we’ll look at everything you need to know about nonfarm payroll and why it’s important to keep tracking.
What is the nonfarm payroll?
As the name suggests, the nonfarm payroll provides an indication of how many people are employed in the US, excluding farm workers and several other labor classifications. This is monitored by the Bureau of Labor Statistics, which receives payroll data from both private companies and government bodies.
This data is made public every month through the Employment Situation report. Nonfarm payroll accounts for around 80% of all U.S. business sectors that contribute to the nation’s GDP.
Why are farm workers omitted from labor statistics?
Farming is a hugely important part of America’s economy and national identity. Think Americana and you’ll most likely imagine ears of corn or stalks of wheat waving in the breeze in front of a brick-red barn.
So, why are farm workers omitted from these monthly labor statistics?
Agricultural labor statistics are actually very complicated. The waters are muddied significantly by unpaid family employment on farms, self-employed agricultural workers, and part-time or hobby farmers.
Farm workers aren’t the only laborers excluded from the nonfarm payroll, either. These statistics also exclude:
Domestic workers and private household employees
Proprietors (i.e. unincorporated business owners)
What is the Employment Situation report?
The Employment Situation report is released on the first Friday of every month. It is made up of two comprehensive surveys – the Establishment Survey and the Household Survey. The Establishment Survey details:
The total number of nonfarm payrolls that have been added since the previous month
New additions by industry category
Number of hours worked
Average hourly earnings
The Household Survey, on the other hand, outlines:
Unemployment rates broken down by age, race, gender, and education
Reasons for unemployment
Participation rates (the number of people employed or actively looking for a job)
Employment data by alternative employment types (e.g. independent contractors)
Why is this information important?
Nonfarm payroll and other elements of the Employment Situation report are all key indicators of the US economy. They are used by economists, policymakers, investors, and businesses in a number of ways. They can be used to determine the viability of starting a business in a particular sector, or advise on the impact of the ongoing pandemic on employment, and the greater economy. They can show which sectors of the economy are expanding or contracting, thereby informing the strategy of stock market investors. They are often used by forex investors to indicate the strength of the US dollar. A reading that is stronger than projected indicates that investors can be bullish on US dollars, while weaker readings may be a sign to be more bearish.
They can also provide an indication of job availability in a given sector, so recruitment teams can tailor their strategy around the estimated size of the applicant pool.
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