Non-farm payrolls: the jobs report that stops the market

The lesson in plain words

The same lesson as the slides above, written out in full.

1. Non-Farm Payrolls

Welcome. On the first Friday of most months, at half past one in the afternoon UK time, the monthly jobs report is released, and markets around the world hold their breath. Its headline figure is non-farm payrolls, which counts how many jobs the economy added or lost in the previous month, outside of the farming sector. Because the health of the jobs market drives what central banks do with interest rates, this single report can move stocks, bonds, gold and the dollar all in the same minute. One note before we begin. This is financial education only, not financial advice.

• On the first Friday of most months, the jobs report lands.
• The headline, non-farm payrolls, counts jobs added or lost.
• Because jobs drive central bank policy, it can move every market at once.

A quick note: This is financial education only, not financial advice. Do not buy, sell, or hold anything based on this lesson.

2. More Than One Number

The jobs report is really three important numbers in one. The headline is payrolls, the net number of jobs added or lost across the economy, outside of farming. But the same release also contains the unemployment rate, the share of the workforce that is out of a job and looking. And it contains average hourly earnings, a read on how fast wages are growing, which feeds directly into the inflation story. The market weighs all three together, and they can pull in different directions. Strong job growth with cooling wages, for example, tells a very different story from strong jobs with hot wages.

• The headline is payrolls: net jobs added or lost, outside farming.
• The same report carries the unemployment rate.
• And average hourly earnings, the wage-growth read that feeds inflation.
• The market weighs all three together, which can pull in different directions.

3. Jobs Drive Rates

Why does it move markets so violently? Because jobs drive interest rates. A hot jobs report, with strong payrolls and rising wages, suggests a strong economy and inflation that may prove sticky. That can push a central bank toward keeping rates higher for longer, which pressures equities, especially the fast growing names. A weak report does the opposite. It can raise hopes of interest rate cuts, which markets often like, but it can also stoke fears of an economic slowdown. So the reaction is not mechanical. It depends heavily on what the market is most worried about at that moment, inflation or recession.

• A hot jobs report suggests a strong economy and sticky inflation.
• That can push the central bank toward higher for longer rates, pressuring stocks.
• A weak report can raise hopes of rate cuts, but also of a slowdown.
• So the reaction depends on what the market fears most at the time.

4. Read the Whole Report

Reading the report well means looking past the headline. Yes, the immediate market move comes from the surprise, the gap between the payrolls figure and what was expected. But the professionals check several things at once. First, the revisions. The previous two months are often revised, and a big downward revision can completely flip the story a strong headline seemed to tell. Second, the wages figure, average hourly earnings, because that is the part that speaks to inflation. And third, the unemployment rate. A strong payrolls number with soft wage growth can be read as a wonderful goldilocks report, strong growth without inflationary pressure. Read the whole thing, not just the first number to flash on the screen.

• The immediate move comes from the headline versus expectations.
• But check the revisions to prior months, which can flip the story.
• Read wages and the unemployment rate alongside the headline.
• A strong headline with soft wages can be read as a goldilocks report.