Non-farm payroll is one of several business cycle indicators that is calculated by the United States Bureau of Labor Statistics, which is part of the U.S. Department of Labor. Non-farm payroll is made up of of all workers except government workers, private household (domestic) workers, employees of non-profit organizations, and farm workers. About 80 percent of the workers who produce the gross domestic product, or GDC, in the United States are defined as non-farm workers. This key employment statistic is released on the first Friday of each month.
The non-farm payroll is one indicator that is used by the government and private economists to help determine the health of the U.S. economy. Another statistic provided by the Bureau of Labor Statistics is the birth-death ratio, which compares the number of new companies that were started with the number of companies that went out of business, over a certain time frame. Because new businesses tend to create jobs at a faster rate than companies that have been in business for a long time, a high birth-death ratio is indicative of a growing economy.
Like other economic indicators, the non-farm payroll figure will fluctuate over the course of the business cycle. During periods of recession, or negative economic growth, non-farm payroll will decline. Economists consider an increase in non-farm payroll, after several periods of decline, to be a sign of recovery. Employment is a trailing indicator, meaning that an increase in jobs only comes after an economy has begun to recover from a recessionary period. By tracking this metric over the course of the economic calendar, a recession and its recovery can be identified.
Besides being used as an indicator for the United States government, the non-farm payroll is used to analyze and predict economic activity by The Conference Board. The Conference Board is a private, not-for-profit entity that uses government statistics and its own research to provide business intelligence to the private sector. The Conference Board produces some of its own economic metrics, such as the Consumer Confidence Index, which are used by government and private enterprise as well.
The non-farm payroll statistic also includes information on those individual sectors, indicating which lost jobs and which gained jobs. The report includes the average hourly earnings, which can indicate the likelihood of inflation. The report may also include revisions to previous reports if they have been found to be inaccurate or incomplete for some reason.