What Is Nonfarm Payroll?
Nonfarm payroll measures the number of workers in the U.S. except those who work in farming, private households, non-profits, and sole proprietorships or self-employment, as well as those who are active military service members.
The Bureau of Labor Statistics (BLS) surveys private and government entities throughout the U.S. to obtain information about their payrolls. The nonfarm payroll numbers are reported monthly to the public through the closely followed employment situation summary.
Key Takeaways
- Nonfarm payrolls include 80% of the number of workers in the U.S. contributing to gross domestic product (GDP).
- It excludes farm workers and workers in several other job classifications.
- Active duty military members are also excluded from the nonfarm payroll data.
- Data on nonfarm payrolls is collected by the Bureau of Labor Statistics (BLS) and included in the monthly employment situation report.
- The employment situation report includes two surveys, the household survey and the establishment survey.
Understanding Nonfarm Payroll
According to the BLS, nonfarm employee classifications account for approximately 80% of workers contributing to gross domestic product (GDP). Besides farm workers, other categories excluded from nonfarm payroll numbers are:
- Government-appointed officials and employees of the Central Intelligence Agency, National Security Agency, the National Imagery and Mapping Agency, and the Defense Intelligence Agency (civilian government employees are otherwise counted in nonfarm payroll)
- Active military service members
- Private household employees and domestic household workers
- Unincorporated business owners such as sole proprietors and self-employed workers that operate without registered business incorporation
- Non-profit employees
Employment Situation Summary
The employment situation summary is a closely followed monthly report released by the BLS on the first Friday of the month following data collection. The report is created from two comprehensive surveys: the household survey and the establishment survey.
The household survey reports the unemployment rate and details employment demographics. The establishment survey segment headlines the number of new nonfarm payroll jobs added to the national economy.
Household Survey
Key components of the household survey include:
- The overall unemployment rate
- Unemployment rates by gender
- Unemployment rates by race
- Unemployment rates by education
- Unemployment rates by age
- Reasons for unemployment
- Employment data by types of alternative employment
- The participation rate
Participation Rate
The labor force participation rate estimates an economy’s active workforce by the number of people ages 16 and older who are employed or actively seeking employment, divided by the total non-institutionalized, civilian working-age population.
Establishment Survey
The establishment survey portion of the employment situation report provides details on nonfarm payroll additions and is referred to as the nonfarm payrolls report. Key components of the establishment survey include:
- The number of total nonfarm payrolls added by an entity for the reporting month
- Nonfarm payroll additions by industry category, such as durable goods, non-durable goods, services, and government
- Details on hours worked
- Details on average hourly earnings
Nonfarm Payroll Data and Economic Analysis
The nonfarm payroll additions and the unemployment rate are headlines of the employment situation report, but economistsand policymakers use all available data to assess the state of the economy and forecast future levels of economic activity.
The report contains insights into the labor force that directly impact the economy, the stock market, the value of the U.S. dollar, the value of Treasuries, and theprice of gold. The household survey data reveals trends in the unemployment rate and participation rate that may be associated with demographics. The establishment survey report offers valuable information on job changes within sectors or industries.
How Do Nonfarm Payrolls Impact the Financial Market?
The report contains data and statistics regarding the employment situation in the United States, which can be used to identify trends in economic growth, inflation, housing starts,and gross domestic product, all of which affect the movement of financial markets.
When Are Nonfarm Payrolls Released?
The data is commonly releasedon the first Friday of each month at 8:30 AM ETand reflects the previous month's data.
Is Nonfarm Payrolls a Leading or Lagging Indicator?
The nonfarm payroll report isnot a leading indicator but provides a snapshot of incidents that affect the overall economy.
The Bottom Line
Nonfarm payroll refers to the number of jobs in the private sector and government agencies. It excludes farm workers, private household employees, proprietors, non-profit employees, and actively serving military. The nonfarm payroll numbers are reported monthly to the public through the closely followed employment situation report, which details changes in unemployment by sector and demographic and new jobs added within the economy.
