Is Non-Farm Payrolls really that important? An article that reveals the truth about two employment data indicators

Why Are Investors Watching Two Employment Data Reports in the US?

Anyone involved in US stocks or crypto trading has probably heard of the concept: the Non-Farm Payrolls (NFP). This indicator causes market waves every month and often serves as a key point for traders to adjust their positions.

But you might not know that two days before the release of the big Non-Farm report, there is a “preliminary” data point—the ADP Employment Report.

Many people treat the ADP report as a crystal ball for predicting the big Non-Farm data, but its actual effectiveness is often disappointing. Where’s the problem? The issue is that these two indicators are fundamentally different in nature.

Small Non-Farm: Looks Important but Is Actually Just a Reference

The ADP Employment Report is compiled by ADP (a company providing payroll processing services) based on its own clients’ payroll data. In other words, it only reflects employment changes in the US private sector, with no visibility into government employment.

In terms of release timing, the small Non-Farm always comes out early—usually on the first Wednesday of each month, two days before the big Non-Farm. This time gap gives the market a “warm-up” opportunity, allowing investors to adjust their expectations for the big Non-Farm based on this data, which can trigger short-term market volatility.

However, this volatility is often fleeting. Why? Because the coverage of the ADP report is limited and not fully representative. When the official data (the big Non-Farm) is released, the earlier judgments based on the ADP report are often overturned.

Big Non-Farm: The Market’s True Anchor

In contrast, the big Non-Farm Payrolls (NFP) report carries much more weight. Released by the US Bureau of Labor Statistics on the first Friday of each month, it is highly anticipated.

It covers employment changes across the entire non-agricultural sector, including both private and government employment. It provides comprehensive data on new jobs added, unemployment rate, and average hourly earnings—all at once.

Because of its thoroughness and official authority, the big Non-Farm report is a crucial reference for the Federal Reserve when setting monetary policy and adjusting interest rates. The strength of the economy can be gauged from this indicator.

If employment data exceeds expectations, it signals robust economic momentum, often benefiting US stocks and pushing related asset prices higher. Conversely, if the data falls short, investors may worry about economic slowdown, leading to stock market pressure and increased risk aversion.

Core Differences Between the Two Indicators

The weight of their data sources varies greatly. The ADP report relies on a sample of private company clients, which, although sizable, has limited representativeness. The big Non-Farm is an official government statistic, covering a broader scope with unparalleled authority.

Differences in coverage determine their reference value. The ADP report only looks at private sector employment, while the big Non-Farm provides a comprehensive view of the entire employment market. During periods of significant government employment changes, the data discrepancy between the two can be quite noticeable.

Market attention to each is on a completely different level. Investors often see the ADP report as an “early warning” tool, but the real market-driving data remains the big Non-Farm. No matter how impressive the ADP data is, if the big Non-Farm disappoints, the earlier gains can quickly reverse.

How Do Traders View These Two Indicators?

For short-term traders, the early release of the ADP report does offer a window for pre-positioning. But the risk is clear—judgments based on less authoritative data can be easily contradicted once the big Non-Farm is released.

Therefore, a wise approach is: pay attention to the ADP report, but don’t treat it as gospel. The real data to take seriously is the big Non-Farm. When waiting for the big Non-Farm data, it’s best to stay alert, because this indicator can significantly alter market expectations and trigger intense volatility.

Especially in uncertain economic conditions, every 0.1% change in the big Non-Farm employment figure could be the last straw that breaks the camel’s back. The movement of US stocks, the strength of the dollar, and even the overall direction of risk assets could be redefined at that moment.

In summary, understanding the difference between the big and small Non-Farm reports boils down to recognizing which data truly holds market sway. The ADP report is the appetizer; the big Non-Farm is the main course.