The most heavily-watched data point within the monthly report is the headline change in non-farm payrolls. This is derived from the Establishment Survey, which asks companies how many people they employ. Separately, there is the Household Survey, which asks individuals whether they are employed and from which the unemployment rate is derived. The two can deliver starkly different messages in an individual month. For example, in the latest report non-farm payroll employment increased by 275,000 while household employment declined by 184,000. However, as one would expect, they line up well when the comparison is over 12 months.
The change in non-farm payrolls is important in terms of its influence on monetary policy decisions. The Fed has indicated that it thinks the labour market is tight although in better balance than it was. In conjunction with elevated inflation, this has been a decisive factor in the Fed tightening policy. A critical question therefore relates to what change in non-farm payrolls is consistent with stability in the labour market.
If the change in non-farm payrolls is less than this threshold then the labour market will be getting looser, something that may encourage the Fed to consider easing policy. If the change in non-farm payrolls is above the critical threshold, this will give the Fed greater cause for concern that labour market conditions are getting tighter. Thinking about the labour market in relation to that threshold also provides valuable information on the state of the economy. If the change in non-farm payrolls is consistently below the critical level then this is a strong indication that economic growth is slowing.