Non-Farm Payrolls (NFP) for tomorrow
Non-Farm Payrolls: Why Is This Indicator So Important For Retail Traders?
The NFP tells us how many jobs were added in the US in the previous month. The unemployment rate is calculated separately by the current population survey (CPS). As the NFP tells us what has happened in the employment market from the previous month, it is therefore a coincident indicator.
This indicator Is important because it tells us whether the economic conditions predicted by the leading indicators 6-12 months previously are starting to show in the economy. However, it is also important because it is one of the most watched and talked about numbers in the US by consumers, governments, and traders.
Retail Traders tend to focus on the NFP number as a percentage number/their main economic guide as to what is happening in the economy. This is wrong as it is a coincident indicator and lags leading indicators.
Aside from this, we can use the ADP Non-Farm Employment Change in order to understand what could happen in the results of the NFP, as this indicator comes one day before the NFP.
We should use ERS (employment situation reports) as part of our wider analysis to decide on the future prospects of the US economy Inflationary/deflationary factors and help us get a bias.
We can conclude that NFP could be dangerous if we don't use it in the correct way. Using coincident indicators to initiate position is one of the most amateur mistakes made by retail traders.
