Must-know for US stock trading: Which is more important, small NFP or big NFP?

What Do the Two Employment Reports Look Like?

When it comes to US employment data, investors are most focused on the Small Non-Farm Payrolls and the Large Non-Farm Payrolls. Although these two indicators sound similar in name, their backgrounds are quite different.

Small Non-Farm Payrolls come from ADP, a company specializing in payroll processing. It is released on the first Wednesday of each month, two days ahead of the large non-farm report. Since it statistics the new employment numbers of ADP clients (mainly private enterprises), its coverage is relatively narrow and does not include government employment.

The large non-farm report is officially called the Non-Farm Payrolls (NFP), published by the U.S. Bureau of Labor Statistics. It is usually released on the first Friday of each month. This report covers employment changes across all non-agricultural sectors in the US, including private and government sectors, and also releases key indicators such as the unemployment rate and average hourly earnings. Simply put, the large non-farm report is the “official version” with greater representativeness.

Which Data Is More Worth Trusting?

At first glance, these two reports seem like “twins,” but in reality, there are significant differences:

Authority-wise, the large non-farm report comes from an official agency, with broad coverage and comprehensive data, and is regarded as one of the most critical economic indicators in the US. Although the small non-farm report is released earlier, it is based on private company data from their own clients and often deviates from the large non-farm figures, serving more as a “predictive reference.”

Coverage-wise, small non-farm only looks at private sector employment, while large non-farm includes both private and government sectors, providing more comprehensive information.

Market reaction, after the small non-farm release, investors adjust their expectations for the large non-farm based on the data, which can trigger short-term volatility. However, since its authority is less than that of the large non-farm, its impact is usually limited.

How Much Does It Affect the US Stock Market?

The role of small non-farm is to “test the waters.” If the small non-farm data far exceeds expectations, it indicates that employment might be stronger than anticipated, prompting investors to raise their expectations for the large non-farm and pushing stocks higher in advance. Conversely, if the data is weaker, the opposite occurs. But because it is not an official figure, this forecast is often not very accurate, and the real driver of the US stock market remains the large non-farm.

The large non-farm is the “big weapon.” Good employment data signals a robust economy, with falling unemployment and rising wages, which are bullish signals for stocks and tend to push US equities higher. Conversely, poor employment figures, especially unexpected declines or rising unemployment, can cause concerns about an economic slowdown, leading to stock sell-offs.

When the Federal Reserve makes interest rate decisions, the large non-farm data is also an important reference. Good employment figures tend to boost expectations of rate hikes, while poor data can do the opposite. These expectation changes ultimately influence the stock market.

How Should Investors Use This Data?

In simple terms, small non-farm can serve as a “frontline” indicator for the large non-farm, helping you gauge the direction in advance. But the real turning point still depends on the release of the large non-farm. Smart investors observe the market reaction after the small non-farm is released and prepare for the impact of the large non-farm. When employment data exceeds expectations, US stocks often get a boost; if the data falls short, there is a risk of a pullback.