Who and when publishes non-farm statistics, how to analyze it. Non-Farm Earnings Strategies, Beginner Traps
Non-Farm Payrolls is called one of the most important reports directly affecting the American currency. It is one of the most significant events in the economic calendar and forms the basis of strategies based on fundamental analysis. Despite the simplicity of interpretation of published statistics, making money on this report is not so easy and experienced traders even convince them to refrain from trying to open positions at the time of its release. In this review, you will learn: what Non-farm is, and who publishes it, how to analyze its numbers, which strategies are based on it, what are the difficulties of earning, and what traps await the novice trader.
Non-Farm Payrolls: what is it and how to make money on it
Adherents of fundamental analysis do not depart from the economic calendar. Still, it would! Indeed, after volatility after the release of statistical reports in a few hours you can earn as much as a trader makes in a calm market in a week, or even longer. It is logical that novice traders are also susceptible to easy traders, who earned on the news seems relatively simple. And here begins the “Grooming of hamsters.” Non-Farm Payrolls report is considered to be one of the strongest in terms of influence on the dollar exchange rate, it is also one of the most controversial, where you should refuse to trade. From this review you will learn:
- What are Non-Farm Payrolls, when it comes out, and where to find information on it;
- how to analyze its value and how to make money on it;
- what traps Non-farm has, and why trading on the news is dangerous for beginners.
What are Non-Farm Payrolls (Theory)
The Non-Farm Report is one of the most anticipated reports on the US labor market, which affects the dollar especially strongly. In terms of significance, this count is second only to the discount rate. This is a report that shows the change in the number of employees for the last month in the non-agricultural sector. This includes statistics on government employees, private sector employees, and nonprofit companies. The total number of people employed in this sector is about 80% (20% of those employed in agriculture are not taken into account since this is seasonal work) of all people employed in creating US GDP. The general analysis is as follows:
- if the actual indicator is higher than the forecast, then the mood of the traders is bullish (the growth of the dollar against other currencies, as this, is evidence of an underestimation of the fact of economic growth);
- if the actual indicator is lower than the forecast, then the mood of the traders is bearish (the depreciation of the dollar against other currencies, as this is evidence of an overestimation of the fact of economic growth).
On the screen are statistics on the report from the economic calendar. Take, for example, the statistics on September 7, 18 (for August). When forecasting changes in the number of jobs in 191 thousand people, the actual figure was 201 thousand people. Since it is above the forecast, it is highlighted in green. This is a positive report optimistically received by investors (this is described in more detail below using the example in the next section). As practice shows, the market responds significantly to the difference between the fact and the previous value of the period of more than 40K (201 – 147 = 54K).
Please note that on 07/07/18 the value is Actual. matches the value of Prev. on 10/05/18. This is the only example where these numbers match. Why? Statistics – science is inaccurate and is periodically subject to revision. If the actual values for the change in the number of employees as of 03.08.18 amounted to 157K employed, then after a review at the beginning of the reporting period (Previous on 07.09.18) this figure turned into 147K. Since the revision is below the fact, the figure “147” is red.
This report is published every first Friday of the month at 15.30 (16.30 – depending on the season) Moscow time. The source of information is a survey of more than 400 US companies, the Bureau of Statistics of the USA (BLS) is engaged in calculations, the author of the report is the US Department of Labor.
The report is analyzed in conjunction with a change in the average hourly wage, which can spoil the statistical picture. And here it is worth mentioning the important related reports:
- A report by Automated Data Processing Inc., which is the largest payroll turnover, operator. It comes out a day earlier than Non-Farm and it is possible to make a preliminary estimate of employment on it (knowing the average hourly wage). Despite the fact that you can track it only in news feeds (for example, Reuters), investment banks after it revise their forecasts for Non-Pharm.
- Jobless Claims Report – Weekly change in the number of applications for unemployment benefits. Published weekly on Thursdays. If their number decreases, then there is a likelihood of non-farm growth.
You can also track data in the news feed of news agencies on PMI (index of business activity), ISM (index of business optimism) and the index of consumer expectations. It makes sense to analyze the data on unemployment (employment) and the main sectors: manufacturing, construction, trade, transport, medicine and healthcare, hotel and restaurant business. The Fed is guided by data on the labor market: stable job growth leads to increased demand, and, consequently, prices. To contain inflation, the Fed raises the discount rate, which also affects Forex.