Non-Farm Payrolls: The “Heartbeat Monitor” of the Economy

1.1 Definition and Core Indicators

The U.S. Non-Farm Payrolls (NFP) is published monthly by the U.S. Department of Labor, measuring the employment changes in all sectors excluding agriculture. It covers over 80% of the workforce, including manufacturing, services, and construction industries, and serves as a key indicator of the health of the U.S. economy. The three core data points include:

• Non-Farm Employment Numbers: Reflects the number of new jobs created.
• Unemployment Rate: Measures the proportion of the workforce that is unemployed.
• Average Hourly Earnings: Observes wage growth and inflationary pressures.

1.2 Big NFP vs Small NFP

• Big NFP: The official and authoritative data, released on the first Friday of each month.
• Small NFP (ADP data): Compiled by the Automatic Data Processing company (ADP), which covers private-sector employment data. Published on the first Wednesday of each month, this data is often considered a leading indicator of the Big NFP. If the difference between the two exceeds 100,000, it may signal market volatility.

Why Non-Farm Payrolls Matter Globally?

2.1 The “Thermometer” of the Economic Cycle

Non-Farm Payrolls directly reflect the hiring intentions of businesses and consumer purchasing power. When employment continues to grow (e.g., 339,000 new jobs in May 2023), it indicates business expansion and an overheating economy, possibly leading to inflation concerns. Conversely, a decline in employment (e.g., a loss of 20.5 million jobs in April 2020 during the pandemic) signals a potential recession.

2.2 The Federal Reserve’s “Conductor”

The Federal Reserve’s two core goals—controlling inflation and promoting full employment—are tightly linked to Non-Farm Payrolls.

• Policy Logic:
  • Strong employment → Higher consumer income → Increased consumer demand → Rising inflation → The Fed may raise interest rates.
  • Weak employment → Insufficient economic vitality → The Fed may lower interest rates to stimulate the economy.
• Typical Cases:
  • June 2022: 398,000 new jobs (forecast: 268,000), unemployment rate 3.6%. The data exceeded expectations, leading the Fed to raise interest rates by 75 basis points, causing the dollar index to rise 2.3% and the stock market to fall.
  • March 2023: 236,000 new jobs (forecast: 239,000), unemployment rate rising to 3.5%. Despite the close match to expectations, the rise in the unemployment rate was seen as a signal of economic cooling, leading markets to expect a slowdown in rate hikes, which caused stock markets and gold to rebound.

2.3 Cross-Market Transmission Effects

Non-Farm Payrolls affect global assets in several ways:

• Foreign Exchange Market: Strong data → Dollar strengthens → Other currencies depreciate (e.g., after May 2023 NFP release, the Euro fell 1.2% against the dollar).
• Stock Market:
  • Strong data → Optimistic economic outlook → Cyclical stocks (e.g., energy, retail) benefit.
  • Weak data → Defensive sectors (e.g., utilities, healthcare) attract attention.
• Bond Market: Rising interest rate expectations → U.S. Treasury yields rise → Bond prices fall (e.g., after June 2022 NFP, the 10-year U.S. Treasury yield surged by 0.15%).
• Commodity Market:
  • Gold: Negative correlation with the dollar (when the dollar rises, gold prices fall).
  • Oil: Positive economic outlook → Increased demand → Rising oil prices.

How Non-Farm Payrolls Affect the Crypto Market

Direct Effects

Non-Farm Payrolls directly reflect the health of the U.S. job market and generally have an immediate impact on financial markets, especially high-risk assets like cryptocurrencies.

• Strong Non-Farm Data (Above Expectations):
  Strong NFP data usually signals an expanding U.S. economy, prompting expectations of interest rate hikes by the Fed to combat inflation. Rate hikes make the dollar more attractive, leading to funds flowing out of high-risk assets (such as Bitcoin) and into traditional financial markets. The Fed’s rate hikes typically increase borrowing costs, reducing liquidity in the crypto market and encouraging investors to move into higher-yielding traditional assets (such as stocks and bonds).
  • Example: In May 2023, after the NFP release showing stronger-than-expected job growth, Bitcoin fell by about 3% in just one hour.
• Weak Non-Farm Data (Below Expectations):
  When NFP data is weak, indicating sluggish economic growth, markets may expect the Fed to lower interest rates to stimulate the economy. Lower interest rates typically increase market liquidity, making it easier for funds to flow into riskier assets. Cryptocurrencies (especially Bitcoin) act as a “digital gold” hedge against traditional market uncertainties, potentially attracting inflows and driving prices higher.
  • Example: In October 2023, weak NFP data led to Bitcoin rising by about 6% the same day.

Indirect Effects

Non-Farm Payrolls not only directly affect market expectations but also partly determine the Fed’s monetary policy direction, which in turn affects capital flows and impacts the crypto market’s performance.

• Strong Data → Fed Rate Hike Expectations:
  When NFP data is strong, suggesting a hot job market and rising inflation, markets generally expect the Fed to raise interest rates. Rate hikes typically mean higher bond yields and a stronger dollar, making traditional financial markets more attractive. Funds flow out of the crypto market, especially Bitcoin, putting downward pressure on its price.
  • Example: In September 2022, the strong NFP data led to an 8% drop in Bitcoin and other cryptocurrencies, as the market anticipated further tightening of monetary policy.
• Weak Data → Fed Rate Cut Expectations:
  When NFP data is weak, indicating a shrinking job market, markets expect the Fed to adopt a more dovish monetary policy, i.e., rate cuts. Lower rates typically lead to increased liquidity, making it easier for funds to flow into the crypto market, thus pushing up Bitcoin and other risk assets.
  • Example: In January 2023, despite strong NFP data, the rise in the unemployment rate led to expectations of a slowdown in rate hikes, and Bitcoin rose by 5% the same day.

Conclusion

Non-Farm Payrolls continue to influence the crypto market’s dynamics by affecting the Fed’s policies and global capital flows. Investors need to focus on two key aspects:

1. The actual vs. expected data (i.e., the data surprise).
2. The market’s interpretation of the data (e.g., a strong employment report with a high unemployment rate may signal contradictory signals).

Historical data shows that Bitcoin’s volatility on NFP release days is 1.7 times higher than on normal days, making it crucial for investors to manage risk during these periods. As the crypto market matures, the transmission mechanism of Non-Farm Payrolls may become more complex.