Trading US Nonfarm Payrolls (NFP) and CPI Inflation Prints

Two US releases tend to dominate the monthly calendar for anyone trading the dollar: the employment report, known as nonfarm payrolls or NFP, and the consumer price index, or CPI. Both come from the US Bureau of Labor Statistics (BLS), both are published at 8:30 a.m. New York time, and both feed directly into expectations about Federal Reserve policy.

This article explains what each release contains, how often and when it is published, and why the headline number is only part of what the market reads. It then sets out risk controls, because these are two of the most volatile moments in the month. For the general mechanics of forecast, actual and previous, see how to trade the news.

The employment report: what NFP is

The Employment Situation report draws on two separate surveys. The establishment survey of about 119,000 businesses and government agencies produces payroll employment, which is the number called NFP: the monthly change in the number of jobs on nonfarm payrolls. It counts jobs, not people, so someone with two jobs counts twice. The household survey of about 60,000 households produces the unemployment rate and related measures.

The report is released on a Friday at 8:30 a.m. New York time. It is usually the first Friday of the month, but not always, because BLS schedules it around the reference week that contains the 12th of the month. Some months it falls on the second Friday, and schedules can shift. BLS publishes a release calendar on its website, and that, not a rule of thumb, is what to trust.

What the market reads in the jobs report

Experienced traders do not look at one number. A report can show a strong headline and weak details, or the reverse, and the first reaction often changes as the details are read.

• The headline payroll change versus the forecast. This is the surprise described in the previous article.
• Revisions to the previous two months. BLS revises payroll estimates as more survey responses arrive, so each report restates the prior two months. A weak new number with a large upward revision can read differently from the headline alone.
• The unemployment rate. It comes from the household survey, so it is a separate measurement and can move in a different direction from payrolls.
• Average hourly earnings. Wage growth matters for inflation, so a strong wage figure can move rate expectations even when job gains are modest.

Payroll figures are also benchmarked once a year to a more complete count taken from unemployment insurance records, so a figure can change again long after the release. For this reason, a single month is a noisy signal. Neither the headline nor the first reaction is the final word.

CPI: what it is and when it comes out

The consumer price index measures the average change in prices consumers pay for a basket of goods and services. BLS publishes it monthly, also at 8:30 a.m. New York time. The release days vary and the dates generally fall around the middle of the month, between roughly the 10th and the 14th, always on a weekday listed on the BLS calendar.

• Headline CPI includes everything in the basket.
• Core CPI excludes food and energy, which are volatile, to give a view of underlying inflation. Traders often react to core first.
• Monthly change versus annual change. The monthly figure compares with the previous month, and the annual figure compares with the same month a year earlier. The annual figure can move because of what happened a year ago, a base effect, not only what happened this month.

Unlike payrolls, CPI figures are not routinely revised once published, apart from the seasonally adjusted series, whose seasonal factors are re-estimated each year. That makes the first release the one that matters for trading. Monthly inflation figures are small, so a difference of 0.1 percentage points can be a large surprise.

Using round numbers: a core monthly rise of 0.3% annualises to about 3.7% (1.003 to the power of 12 is about 1.037), while 0.2% annualises to about 2.4%. A 0.1 point miss on one month therefore changes the annualised picture by more than a full percentage point, which is why the market treats a small monthly surprise seriously.

How the dollar, bonds and stocks respond

The link is through interest rate expectations. A strong jobs report or hot inflation print makes it more likely that the Fed keeps rates higher for longer or raises them, which tends to support the dollar and lift Treasury yields. A weak report does the opposite. This is the mechanism described in what moves forex prices.

Stocks can behave less simply. Strong data can be read as good for earnings, or as bad because it keeps rates high, and the interpretation changes with the situation. At times the market treats good news as bad news. Do not assume a fixed relationship, and note that the reaction of a pair such as EUR/USD also depends on events in the other economy.

A worked example of reading a report

Suppose the forecast for payrolls is +150,000, the actual is +200,000, and the previous month is revised from +180,000 down to +150,000. The headline surprise is +50,000. The revision is -30,000. The net picture is a smaller upside surprise than the headline suggests, and if average hourly earnings are soft, the dollar's first rise could fade. These figures are invented to show the reasoning, not a reading of any actual report.

The same method works for CPI. If core is forecast at +0.3% for the month and prints +0.2%, that is a downside surprise, and the market will look at what drove it. A fall in a volatile component can be discounted, while a drop in services prices, which tend to change more slowly, can carry more weight.

Common mistakes around these releases

The first mistake is treating the headline as the whole story. The payroll figure, the revisions, the unemployment rate and wages can each point in a different direction, and the market often changes its mind within minutes as traders read the details. A position taken on the first candle is a position taken on partial information.

The second is forgetting the calendar around the release. Inflation and jobs data matter most when a central bank meeting is close, because the data feeds straight into the decision. A report two days before a policy meeting can carry more weight than the same report right after one. The third is ignoring the cost of being wrong in a thin market: a stop that looks reasonable on a quiet chart can behave very differently at 8:30 a.m. New York time on release day.

Risk controls for these two releases

• Know the exact time in your time zone and the date on the BLS calendar, not a guess.
• Expect wide spreads and slippage in the first seconds. Position size should assume your stop can fill beyond its level.
• Reduce size or stay flat. For many traders the best decision on release day is not to hold a position through the number.
• Avoid placing pending orders on both sides. The reversals that follow can trigger both.
• Do not add to a loser because the first reaction looks like an overreaction. Wait for price to settle and use a level you prepared in advance.

Position sizing and stop placement are covered in where to place stop loss and take profit orders. Trading these events with leverage carries a high risk of loss, and nothing here is a forecast or advice.

Sources: US Bureau of Labor Statistics, Employment Situation release calendar and technical note (household and establishment surveys, revisions, benchmarking); BLS CPI release calendar and CPI questions and answers (revisions, core measure, 1-month and 12-month changes). Next in the series: Leading Macro Indicators: ISM Manufacturing PMI, Retail Sales and GDP.