The Employment Situation Report

The Employment Situation Report, commonly known as the Labor Report, is an extremely broad-based indicator which is released by the United States Bureau of Labor Statistics (BLS). The report consists of two separate surveys. The first, the “establishment survey”, is a sampling from over 400,000 businesses across the country. It is widely regarded as the most comprehensive labor report available in the nation, covering about 30% of all non-farm workers nationwide, and offers statistics including non-farm payrolls, hours worked and hourly earnings. This is huge in both size and breadth, with statistics covering over 500 industries and hundreds of cities.

The second survey, known as the “household survey”, collects statistics from more than 60,000 households and produces an estimated figure which represents the total number of Americans out of work, and from that the national unemployment rate. The data is compiled by the U.S. Census Bureau and the Bureau of Labor Statistics. This allows for a census-like component, adding demographic shifts into the equation, giving the results a different perspective.

Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation’s business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls.

The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy.

The Employment Situation Report is a multi-layered release, with many links from the main page which follow the headline discussion items. Since there is so much information in this report, it’s important to identify the numbers that are the most important.

Non-farm payrolls, the unemployment rate (U-3), the real unemployment rate (U-6), the employment-population ratio, and the labor force participation rate are some of the most important numbers to pay attention to in each report.

The non-farm payrolls figure is very, very important on Wall Street; it’s considered the benchmark labor statistic, and it’s used to determine the health of the job market because of its huge sample size and historical track record in accurately predicting business cycles. Generally, economists have settled on the number of 150,000 new jobs as the level that defines economic growth. An increase of about 150,000 jobs or more indicates an expansion of the labor force, while anything below points to a weak job market.

Each of the above mentioned surveys comes up with its own figures for the total amount of employed Americans using very different methods. The establishment report is much larger, and is widely regarded as more accurate. However, this survey excludes private households, self-employed individuals and the agricultural sector. The household report runs on a smaller sample and is more subjective, but the inclusion of self-employed workers, for example, can make this figure more valuable in a time when many people are starting their own business, which is often the case in the beginning of a new business cycle.

The unemployment figures from the household report (which is probably the most watched segment of the release after non-farm payrolls) are considered a lagging indicator, since people tend to be out of work when problems in the economy have already manifested themselves in falling economic output.

Analysts will usually conclude that if payrolls are increasing and wages are rising, that personal consumption stats like retail sales will advance as well, as more money will be in the pockets of consumers, which generally means that the dollar will perform well against its peers.

The Fed watches this report very closely. The unemployment rate alone accounts for close to 50% of the lagging index created by the Conference Board and used by the Federal Reserve Board.

The household survey accounts for demographic changes to some degree, whereas the establishment survey only counts the total number of payrolls. Therefore, the household survey acts as sort of a mini-census, which is why the same employment report can show an increase in payrolls, while the unemployment rate rises as well, which can seem like a contradiction to those not familiar with the report.

The number of hours worked data can also be a bell-weather of where the economy is in the business cycle; quite often companies will try to stretch the hours of their current workforce before they go into the job market and hire new workers.

The report has some flaws: Summer and other seasonal employment tends to skew the results; Only measures whether people are working, it does not take into account whether these are jobs the people wish to have, or whether they are well-suited to workers’ skills; Volatile, revisions can be quite large, and updates should always be viewed in the most recent report; Unemployment and payroll figures can seem to be out of alignment, as they are derived from two different surveys; Compensation costs portion is considered inferior to the Employment Cost Index.