Encryption Economy Trio - Prelude: US Non-farm Payrolls (NFP)

Whether in traditional markets or the crypto market, why do non-farm payrolls play the role of striking the prelude in the market’s symphony?

Written by: Musol

In July, the non-farm payroll data for June released by the U.S. Department of Labor disappointed global market expectations—an increase of 147,000 jobs, significantly higher than the expected 110,000, and the unemployment rate dropped to 4.1%. This data directly extinguished the market’s expectations for a rate cut by the Federal Reserve in July, but puzzlingly, Bitcoin surged both before and after the data was released. What kind of market logic is hidden behind this unusual phenomenon? Whether in the traditional market or the crypto market, why does the non-farm payroll play a role in striking the first chord in the market’s symphony?

What is non-farm data?

The term “non-farm” refers to employment-related data that excludes the agricultural sector, self-employed individuals, and employees of non-profit organizations, reflecting the actual employment and economic situation in the United States. This data is published by the Bureau of Labor Statistics of the U.S. Department of Labor — announced on the first Friday of every month, with U.S. publication times at 8:30 AM Eastern Time (Daylight Saving Time) and 9:30 AM (Standard Time), corresponding to 8:30 PM and 9:30 PM Beijing Time.

In short, non-farm data refers to the monthly changes in the non-agricultural employment population in the United States, including employment numbers, unemployment rates, and so on.

It is like a “weather forecast” in the financial world, allowing us to sense the “sunny and rainy” aspects of the economy in advance.

What do you mean by that? Employment can be understood as the “barometer” of the economy. When the employment situation is good, everyone has a job, money in their pockets, and consumption will increase, leading to a natural prosperity of the economy; conversely, when employment is poor, everyone needs to tighten their belts to get by, and the economy is much like having a “cold”.

In the stock market, when non-farm data performs strongly, corporate earnings expectations increase, and stock prices tend to rise. Investors are like “generals who have won a battle,” beaming with joy; meanwhile, in the bond market, strong non-farm data may lead to a decline in bond prices, as the market expects interest rates to rise. This is akin to a grand performance in the financial market, where non-farm data serves as the key “Director,” controlling the direction of the plot.

PS:

1. What is ADP Non-Farm Data - The ADP Non-Farm Data is the private sector non-farm data released by Automatic Data Processing(, commonly known as ADP). The employment numbers they publish are relatively authoritative. The ADP National Employment Report is sponsored by ADP, with Macroeconomic Advisers responsible for its formulation and maintenance. The ADP Non-Farm Data is released monthly, typically on the first Wednesday of each month. This data is published at 21:15 during Standard Time (November - March) and at 20:15 during Daylight Saving Time (April - October). Generally, the ADP Non-Farm Data has a certain predictive effect on non-farm data.

2. The Difference Between ADP Non-Farm and Non-Farm Payroll — First, ADP Non-Farm mainly refers to non-farm data from the private sector, while Non-Farm Payroll encompasses statistics from all industries across the U.S. Second, ADP Non-Farm is released two days before the Non-Farm Payroll data, and it serves as a predictive indicator for the Non-Farm Payroll data. Generally, the data from ADP Non-Farm and Non-Farm Payroll does not differ significantly. Everyone uses the data from ADP Non-Farm to forecast the Non-Farm Payroll data.

What Justifies the Prelude to Non-Farm Data?

Non-farm payroll data is an important indicator for assessing the economic cycle

Definition of recession: A sustained slowdown in economic activities such as industrial output, employment, and real wages over several months, indicating that the economy is moving from peak to trough in the cycle.

From this, it can be seen that the key to determining whether the economy is expanding or contracting lies in the observation of monthly economic data. Since industrial output data is usually published quarterly and has weaker timeliness, the monthly data that can measure overall employment conditions—non-farm payroll data, becomes the most important indicator for assessing economic cyclicality.

For example, if the economy has been in a recession for 6 months, but non-farm data shows that employment has recovered and exceeded the previous low point, then from the perspective of the economic cycle, the economy has reversed, with the previous low point being the trough, and the future economy is likely to continue improving, which will greatly boost market confidence.

Non-farm payroll data is highly correlated with economic performance

From the simplest basic knowledge of economics, positive non-farm data indicates a healthy economy.

The non-farm sector accounts for 80% of the total output in the United States. An increase in non-agricultural employment indicates that businesses are expanding production and are willing to hire more workers. These new employees will have more funds for spending and consumption. The growth of the U.S. economy is primarily driven by domestic demand, with consumption making up as much as 70% of U.S. GDP, so an increase in consumer spending directly reflects an overall improvement in the U.S. economy.

It can be seen that non-farm data is a key indicator for predicting economic growth and CPI levels.

Market participants use non-farm data as the basis for economic forecasts

Non-farm data is the most important parameter in the economic modeling process.

The Federal Reserve refers to non-farm payroll data to determine future interest rate policies, institutional investors adjust their positions and scale based on it, and economists and analysts predict future economic trends through this data. As a key economic indicator, non-farm payroll data is a core input variable for decision-making across various parties and can be considered a market barometer. Whenever actual non-farm payroll data is released, it sounds the prelude, stirring market nerves, and the difference between the expected value and the actual value can create a market amplification effect— the greater the difference, the stronger the amplification effect, which can even trigger severe fluctuations in the capital market.

What is the impact of non-farm data?

For USD exchange rate——when non-farm payrolls increase, it indicates a strong U.S. economy, which usually leads to the appreciation of the dollar; conversely, a decrease in employment numbers may trigger a depreciation of the dollar.

For Federal Reserve monetary policy——with good non-farm data, the Federal Reserve may consider raising interest rates to curb inflation; conversely, if the data is poor, the Federal Reserve may maintain low interest rates to stimulate the economy.

For global stock markets——good non-farm data usually boosts investor confidence and drives global stock markets up; while poor data may lead to stock market declines.

For the bond market——when non-farm data performs well, the market’s optimistic expectations for the economy will lead to rising bond yields and falling bond prices; poor non-farm data may result in declining bond yields and rising bond prices.

For foreign exchange market——the foreign exchange market is very sensitive to non-farm data. The US dollar usually strengthens when non-farm data is strong, and weakens when the data is poor.

For commodity futures market—the changes in non-farm data will affect the prices of commodity futures priced in US dollars, such as gold, crude oil, etc. A stronger US dollar typically depresses gold prices, as gold is priced in US dollars, and the appreciation of the dollar makes gold more expensive for investors holding other currencies.

For market sentiment——After the data is released, market sentiment becomes more volatile, and investors’ expectations regarding future economic trends and monetary policy directions are likely to diverge.

For fund flow——Changes in non-farm data may trigger adjustments in global fund flows, thus affecting the A-share market. Strong non-farm data may enhance global investors’ confidence in dollar assets, leading to some funds flowing back from emerging markets to the US market.

In July, why is there a paradox in the crypto market under the non-farm payroll data?

Generally speaking, strong non-farm data will reinforce expectations for the Federal Reserve to raise interest rates (at least not lower them), putting pressure on risk assets.

But Bitcoin’s performance that night was akin to a discordant note among the perfectly aligned musical notes: the price rose by 1.1% in the 24 hours leading up to the data release, and after the interest rate cut expectations fell through, Bitcoin not only did not retreat but continued to climb, breaking through the 110,000 USD mark.

This seemingly contradictory trend actually reveals the cognitive differences between the crypto market and traditional financial markets.

Some professional institutions have analyzed that Bitcoin rose before the data was released, partly due to the market’s bets on weak data. Due to the erratic trade policies, many industry employers have recently adopted a wait-and-see attitude and are hesitant to increase hiring. Therefore, many traders expect that the non-farm payroll may perform poorly and are positioning themselves in advance with safe-haven assets.

However, this explanation fails to answer a key question – why did Bitcoin play its own symphony after the data far exceeded expectations?

In-depth analysis reveals that the逆势上涨 of Bitcoin follows a certain market logic:

First of all, although the non-farm data is strong, the breakdown shows that growth is concentrated in specialized services and the financial sector, while the real economy sectors such as healthcare and trade continue to shrink. This structural contradiction raises doubts about the authenticity of the economy. Especially in recent years, various data has been significantly revised multiple times, and the release of various data seems to serve as a cover for other political purposes. The credibility of the data is gradually being eroded.

Secondly, the shift in wording in the Federal Reserve’s statement last week that “if the labor market shows significant weakness, it may cut interest rates earlier than expected” has been interpreted by the market as not changing the long-term easing tone, and single-month data is difficult to reverse this expectation. After all, hundreds of trillions of U.S. Treasury bonds, and the interest for a year is nearly catching up with U.S. military spending, making the downward trend in interest rates very difficult to change.

The most decisive factor is that a large number of institutional investors are viewing Bitcoin as “digital gold” to hedge against the credit risk of the US dollar. The transition from risk assets to digital gold has seen Bitcoin gradually become a “safe-haven asset” favored by mainstream economies. Recent asset performance seems to indicate that regardless of “good news” or “bad news,” there is always a reason for Bitcoin to rise again. With low price volatility, quick recovery from negative news, and consistently good liquidity, a consensus has gradually formed in the Bitcoin market.

Data shows that within one hour after the non-farm payroll announcement, net inflows into Bitcoin spot ETFs reached $230 million, demonstrating that traditional capital is restructuring asset allocation logic. When the market neither believes that the Federal Reserve will maintain the current high interest rates nor is it concerned about structural economic issues, Bitcoin becomes the best liquidity haven.

When there are significant discrepancies in market news, putting money into Bitcoin may have already become a good choice.

Searching for BTC in the Non-Farm Payroll? “Carving a Boat to Seek a Sword” May No Longer Apply

Looking back at the market reaction when the non-farm payroll data was released in December 2024, a similar phenomenon occurred—at that time, 256,000 new jobs were added, far exceeding expectations, yet Bitcoin rose 12% in the following week. This “good news is bad news, bad news is good news” abnormal correlation reflects that the crypto market has already formed an independent pricing logic.

The Federal Reserve’s monetary policy transmission mechanism is undergoing subtle changes. Comparing the expectations from July this year (as shown in the chart), the strong non-farm payrolls in December last year led to an increase in the expectation of “keeping interest rates unchanged for the year,” precisely because the market has perceived the structural contradiction between job growth and productivity improvements.

It is clear that the current situation is already quite bad, but on a data level, it shows an unusually strong resilience, which makes people doubt the credibility of the data.

The current strength of Bitcoin is essentially a vote on the credibility of the Federal Reserve’s policies — when the market believes that the central bank is caught in a dilemma between inflation and growth, decentralized assets naturally command a premium.

Ultimately, people have lost trust in traditional financial institutions like the Federal Reserve. After all, human intervention is not unmanageable.

As the yield on the 10-year U.S. Treasury approaches 5% yet still struggles to stop capital outflows, the market is reconstructing a pricing system that transcends sovereign currencies with real money.

Against the backdrop of diminishing credit margins in the dollar system, cryptocurrencies have already undergone a transformation from risk assets to alternative reserve assets.

**Flowers are not flowers, mist is not mist. Comes at midnight, leaves at dawn. Does it come like a spring dream for a short while? Does it go like morning clouds, without a trace? **