Non-Farm Payrolls
November 3rd, 2006 by Justin
For newbie forex traders, a mere mention of the term Non-Farm Payrolls (NFPs) brings delusions of grandeur. Fifty points or pips made in 50 seconds, that kind of thing. For stock traders, NFPs stand for fear perhaps more than anything else, as huge market swings can occur before the market open. This leaves most equities traders with no way to position themselves on the number: few traders have access to pre-market deals, and liquidity prior to the market open is minimal at best. As such, Non-Farms simply add a huge amount of uncertainty into the mix, making traders nervous across the board.
The question, then, is whether the market is justified in giving the release so much attention. Granted, the basis for the number according the Bureau of Labor Statistics is valid: to provide a measure of monthly job growth outside the farming sector in the US. Relevancy comes into question when the issue of accuracy is raised. Like most numbers, NFPs are subject to revisions. Often, last month’s number is revised by more than this month’s entire number. Today, NFP printed at 92,000, while the September number was revised up by 97,000!
Even worse, the revisions are subject to revisions. Last month, an entire year’s worth of data was revised by 810,000, or 67,500 per month.
Any reasonable person would ask, what value can there possibly be in a number so glaringly inaccurate? The logical answer: none whatsoever. Trouble is, the markets are hardly logical. Until speculators stop caring where Non-Farm Payrolls print, denying the importance of the number will only cause uncertainty for those clinging to mere logic.
