Nonfarm Payrolls
What is Nonfarm Payrolls?
Nonfarm payrolls measure the net change in jobs on employer payrolls outside farming, reported monthly by the Bureau of Labor Statistics.
Nonfarm payrolls come from the establishment survey, a monthly count of jobs at businesses and government agencies that leaves out farm work, the self-employed, unpaid family workers and private household employees. The headline is the net change from the previous month, so it sets hiring against separations rather than counting gross hires. Payrolls are a coincident indicator, since employment moves broadly in step with output rather than ahead of it. The same release carries the household survey, which produces the unemployment rate, and the two can disagree because they count different units: payrolls count jobs, so one person holding two jobs appears twice, while the household survey counts people. Each month's payroll estimate is revised in the two following reports, so a first print is a draft rather than a final figure.
Nonfarm Payrolls: a worked example
Suppose payrolls rise by 150 thousand in a month while population growth adds about 100 thousand people to the labor force. Job creation exceeds entry by 50 thousand, so the unemployment rate has room to tick down. Now suppose the two prior months are revised down by 30 thousand and 25 thousand. Netting the revisions, 150 - 55 = 95 thousand of genuinely new employment shows up in the report, a weaker picture than the headline alone suggests. This is why economists read the three-month average of payrolls together with revisions instead of reacting to one number.
The mistake students make with nonfarm payrolls
The common error is thinking payrolls count people. They count jobs, so a worker holding two part-time positions is counted twice, and that is one reason payroll employment and the household survey's employment level differ. A second error is treating the first release as final. Every month is revised twice, and revisions near a turning point are often large enough to change the story the data tells.
Nonfarm Payrolls questions
What does nonfarm payrolls exclude?
Nonfarm payrolls exclude farm workers, the self-employed, unpaid family workers, private household employees and the active-duty military. Farm employment is left out largely because it is so seasonal that it would swamp the underlying trend. Everything else on a business or government payroll is counted.
Is nonfarm payrolls a leading or coincident indicator?
Payroll employment is a coincident indicator, because hiring moves with production rather than before it, and it is one of the four components of the standard coincident index. Initial jobless claims and average weekly hours are the labor-market series that lead. Payrolls confirm the state of the economy rather than forecast it.
Why do payroll numbers get revised?
Revisions occur because not every establishment reports in time for the first estimate, so later releases fold in the late responses. Each month therefore gets updated twice more, and an annual benchmark against state tax records corrects the level. First prints near a turning point tend to move the most.
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