NFP- HOW IT EFFECTS YOUR TRADING

Well it is that time again and we will all be watching the charts as the NFP report comes out and if you are like me will wonder why this is so important.  I often ask why this can be because it is really not a true indicator of the US economy. But non the less it has its effect.  I found a good article on how this number is derived and again I ask how it has such an impact on the markets when it is but an estimate at best.

 
Each month the government releases the labor report, which encompasses nonfarm payrolls – the number of people working – and the unemployment rate - a look at those who are out of work and actively searching.
The reports are lagging indicators of economic activity, but the numbers have a major influence on monetary policy and public opinion. Hence, politicians also pay close attention.
The unemployment rate is derived from the household survey while nonfarm payrolls are calculated by a separate survey called the establishment survey.

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The establishment payroll survey is based on a sample of 390,000 business establishments nationwide, providing the public with monthly estimates of employment, hours and earnings.
According to the BLS, employment is viewed as the “total number of persons on establishment payrolls employed full or part time who received pay for any part of the pay period that includes the 12th day of the month. “
Temporary employees are included, as are any workers who are on paid sick leave, paid holiday or who work during only part of the specified pay period.
Persons who have been laid off the entire pay period, on leave without pay, on strike for the entire period or who have not yet reported for work are not counted as employed. Government employment covers only civilian workers.


Benefits and drawbacks of establishment and household surveys
The household survey, which is used to calculate the unemployment rate, also provides a sample-based estimate of month-to-month changes in employment, but this section of the report generally gets little play in the national media.
The establishment survey has a smaller margin of error on month-to-month changes than the household survey because it is a much larger sample size. The BLS notes that an employment change greater than 104,000 is statistically significant in the establishment survey, while the threshold for a statistically significant change in the household survey is about 390,000.
But the household survey has a more expansive scope than the establishment survey because it includes the self-employed, unpaid family workers, private household workers, and agricultural workers who are excluded by the establishment survey.
Source: Bureau of Labor Statistics

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