Module 6

Employment Figures

Labour statistics are about people. They measure people's participation in work –
their earnings, type of work, working hours and conditions – as well as their success
in, or barriers to, finding work.

Labour statistics provide insight into the economy and the effect of policy settings
on the population through measures related to labour supply and demand, as well as
its price.

Measures and uses

Labour statistics sit at the intersection of economic and social statistics. They
provide information about the size and structure workforce required for policy
formulation, evaluation and macro-economic modelling, and measure relationships
between employment, income and other social and economic characteristics.

Four key components related to work and the broader labour market are measured:
• People
• Jobs
• Hours
• Payments

What Is Jobs Growth?

Jobs growth is measured in the U.S. by the number of employees added to nonfarm
payrolls monthly, as reported by the U.S. Bureau of Labor Statistics (BLS). It is a
key indicator of the pace of economic expansion. Nonfarm payrolls are part of the
Employment Situation Summary published by the BLS, the widely followed
statistical release better known as the monthly jobs report.

• Jobs growth is measured by the monthly change in nonfarm payrolls as

reported by the U.S. Bureau of Labor Statistics.
• A monthly increase of between 50,000 and 110,000 nonfarm payrolls is the
steady-state jobs growth rate that is in line with the gradual expansion of the
labor force.
• Jobs growth figures are released monthly and are subject to revisions over the
next two months as additional survey results are collected.
• These figures often move financial markets as one of the most important and
timely economic indicators.
• Farm employment and agricultural jobs are not included in these calculations.

Why is it important for us?

As a comprehensive measure of U.S. employment and one of the earliest economic

reports for a given month, the Employment Situation Summary often moves
financial markets. In addition to tallying nonfarm payrolls, the establishment survey
estimates average weekly hours worked—a measure of labor demand—as well as
average hourly earnings, an early indicator of labor cost inflation.

Because of the report's importance to investors and policymakers, traders compare

the numbers in it to the consensus of analysts' forecasts to get an early sense of
whether, for example, nonfarm payroll gains in the latest month exceeded or trailed
market expectations.
Since the numbers fluctuate from month to month and are subject to significant
revisions, it takes more than a single report to establish a trend. Investors must also
consider jobs growth in the context of other economic indicators. Despite those
limitations, the monthly jobs growth remains a key indicator of how the economy
was faring very recently.

Employment Report Implications

A single month of job gains or losses is hardly a trend, and the monthly change in
nonfarm payroll numbers is subject to wide fluctuations as well as sizable revisions.
Still, it can be an invaluable gauge of economic trends in context with the reports
from prior months and other economic data.

Employment is so integral to the U.S. economy that there is no single better proxy
for its state, and the monthly jobs report is the most comprehensive employment
gauge as well as one of the timeliest monthly economic indicators.

The unemployment rate and the change in nonfarm payrolls garner all the headlines
and are likely the economic indicators cited most frequently by the mainstream
media. But the data on earnings serve as an early and important indicator of
employment costs, which can contribute to inflation. And the hours worked as well
as the changes in the number of part-time and temporary workers provide leading
indicators of labor demand.
The socioeconomic subcategories in the household survey help policymakers assess
whether some groups are being left behind or making up ground.

Understanding Jobs Growth

Jobs growth refers to the net increase in the number of nonfarm payrolls during the
previous month. This number is widely followed because employment is crucial for
economic performance.

A 2016 analysis by the Federal Reserve Bank of San Francisco estimated a monthly
increase of between 50,000 and 110,000 nonfarm payrolls, or a monthly growth rate
between 0.033% and 0.072%, to be the steady-state jobs growth rate that is in line
with the gradual expansion of the labor force.

Bigger gains suggest growth above the trend, while smaller ones or outright losses
may signal a slowdown.

That said, it is important to remember that the jobs growth numbers in the
Employment Situation Summary are estimates. The numbers for a given month are
revised in each of the next two monthly reports based on additional survey
submissions. A monthly nonfarm payroll increase of about 100,000 is considered
statistically significant.

263,000-The rise in total U.S. nonfarm payroll employment in November 2022. The
unemployment rate, derived from a separate survey, remained unchanged at 3.7%.3

How Jobs Growth Is Measured

The Bureau of Labor Statistics compiles jobs growth data by surveying about
145,000 businesses and government agencies accounting for about a third of total
U.S. nonfarm employment. The Employment Situation Summary provides data from
this "establishment survey" tracking nonfarm employment by industry as well as a
separate household survey of employment status.

The two surveys provide headline-making figures on jobs growth and

unemployment.
Although nonfarm payrolls are subtotaled by industry, the most commonly reported
number is the net change in U.S. payrolls from the preceding month, which estimates
the number of jobs added outside the agricultural sector. Farm employment is
excluded from the establishment survey because it is too seasonal and harder to
estimate.

Because of how important it is to the economy, jobs growth is closely watched by

the Federal Reserve as it makes changes to its monetary policy.

How the Employment Report influences Wall Street and the economy

The U.S. Bureau of Labor Statistics (BLS) releases the Employment Situation
Summary, better known as the employment, or jobs report, at 8:30 a.m. ET on the
first Friday of every month. The report is based on surveys of households and
employers. It estimates the number of people on payrolls in the U.S. economy, the
average number of hours they worked weekly, and their average hourly earnings,
along with several versions of the unemployment rate.

Photo by CNBCTV18.COM

The jobs report is among the most important and comprehensive economic releases,
and the earliest to provide data for the immediate prior month. Its numbers are hotly
anticipated and closely parsed as a result.

Many investment firms issue estimates ahead of the report for the monthly change
in nonfarm payrolls and the U-3 unemployment rate, as well as hours worked and
hourly earnings. The report often moves financial markets and is used among other
data by the Federal Reserve to assess the state of the economy in setting monetary
policy.

• The monthly jobs report from the Bureau of Labor Statistics (BLS) estimates
the U.S. unemployment rate and the monthly change in nonfarm payrolls, as
well as average earnings and hours worked.
• The report consists of two main components: the household survey used to
estimate the unemployment rate and the establishment survey providing data
on payrolls, hours worked, and earnings.
• Released on the first Friday of every month for the prior month, the jobs report
gives investors one of the earliest and most comprehensive views into the
recent state of the U.S. economy.
• Earnings data is used to assess labor cost pressures, while hours worked can
be a leading indicator of labor demand. Socioeconomic subcategories in the
household survey show which groups are suffering the most and least from
unemployment.

What Is the Unemployment Rate?

The unemployment rate is the percentage of the labor force without a job. It is a
lagging indicator, meaning that it generally rises or falls in the wake of changing
economic conditions, rather than anticipating them. When the economy is in poor
shape and jobs are scarce, the unemployment rate can be expected to rise. When the
economy grows at a healthy rate and jobs are relatively plentiful, it can be expected
to fall.

• The unemployment rate is the proportion of the labor force that is not currently
employed but could be.
• There are six different ways the unemployment rate is calculated by the
Bureau of Labor Statistics using different criteria.
• The U-3 unemployment rate for November 2022 was 3.7%.
• U.S. unemployment data is released on the first Friday of every month.

What Are Jobless Claims?

Jobless claims are a statistic reported weekly by the U.S. Department of Labor that
counts people filing to receive unemployment insurance benefits. There are two
categories of jobless claims—initial, which comprises people filing for the first
time, and continuing, which consists of unemployed people who have already
been receiving unemployment benefits. Jobless claims are an important leading
indicator of the state of the employment situation and the health of the economy.

• Jobless claims measure how many people are out of work at a given time.
• Initial jobless claims represent new claimants for unemployment benefits.
• Continuing jobless claims are people who are continuing to receive benefits.
 • It is generally a poor sign for the economy when a growing number of
people who are willing to work can't find jobs.
• Because weekly jobless claims can be very volatile, many economists
monitor the moving four-week average.

What Are Average hourly earnings (AHE)

Average hourly earnings (AHE) is an important indicator of labor cost inflation and
of the tightness of labor markets - something the Federal Reserve pays close attention
to when setting interest rates.

Likely Impact of Financial Markets:

Interest Rates: Larger-than-expected increases are considered inflationary causing

interest rates to rise. The bond market views an increase in AHE as leading to labor
cost inflation that is inflationary if in excesss of productivity growth. A large rate of
growth of AHE also make it more likely that the Fed will increase the Fed Funds
rate that is also bearish for the bond market.

Stock Prices: Higher wage inflation is bearish for the stock market because high
wage growth may reduce profits, increase long-term interest rates and lead the Fed
to increase the Fed Funds rate to stem inflation.

Exchange Rates: Uncertain. High wage inflation leads to high inflation and loss of
competitiveness. However, it also leads to higher nominal interest rates and real ones
too if the Fed tightens; such an increase in interest rates would tend to strengthen the
exchange rate.

Ability to Affect Markets: Strong as it is an early signal of wage inflation.

Understanding the Unemployment Rate

The U.S. unemployment rate is released on the first Friday of every month (with a
few exceptions) for the preceding month. The current and past editions of the report
are available on the website of the Bureau of Labor Statistics (BLS). Users can
generate and download tables showing any of the labor market measures named
above for a specified date range.

In the U.S., the official and the most commonly cited national unemployment rate is
the U-3, which the BLS releases as part of its monthly employment situation report.
It defines unemployed people as those who are willing and available to work and
who have actively sought work within the past four weeks.

According to the BLS, those with temporary, part-time, or full-time jobs are
considered employed, as are those who perform at least 15 hours of unpaid work for
a family business or farm. The unemployment rate is seasonally adjusted to account
for predictable variations, such as extra hiring during the holidays. The BLS also
provides the unadjusted rate.

What is Nonfarm Payrolls?

Nonfarm payrolls is the measure of the number of workers in the U.S. excluding
farm workers and workers in a handful of other job classifications. This is measured
by the Bureau of Labor Statistics (BLS), which surveys private and government
entities throughout the U.S. about their payrolls. The BLS reports the nonfarm
payroll numbers to the public on a monthly basis through the closely followed
“Employment Situation” report.

Photo by TheStreet
In addition to farm workers, nonfarm payrolls data also excludes some government
workers, private households, proprietors, and non-profit employees.

• Nonfarm payrolls is the measure of the number of workers in the U.S.

excluding farm workers and workers in a handful of other job classifications.
• The nonfarm payrolls classification excludes farm workers as well as some
government workers, private households, proprietors, and non-profit
employees.
• The data on nonfarm payrolls is collected by the Bureau of Labor Statistics
(BLS) and put in its monthly "Employment Situation" report, which also
includes the unemployment rate.

Understanding Nonfarm Payrolls

While the name nonfarm payrolls insinuates that farm workers be excluded from the
statistic, there are also several other categories that the BLS does not count when
compiling nonfarm payrolls data. According to the BLS, nonfarm employee
classifications account for approximately 80% of U.S. business sectors contributing
to gross domestic product (GDP). While this represents a significant majority of the

How Does the BLS Collect Employment Data?

The Bureau of Labor Statistics (BLS) collects employment data via its professionally
trained field economists. These agents utilize house visits, phone calls, video calls,
mail, and email to gather data via a conversational approach.

How Does the BLS Measure Unemployment?

The BLS measures unemployment by dividing the total number of unemployed

people looking for a job by the total number of individuals in the labor force. The
way in which the BLS defines "unemployed" and "labor force" can vary depending
on the specific unemployment statistic. In general, the labor force consists of those
who are working as well as those who are not working but actively looking for work.
If you are not working and are not looking for a job, you are not factored into
unemployment.
How Is the Jobs Report Calculated?

The Jobs Report from the BLS is calculated from two surveys. One survey is the
household survey, which is where the unemployment rate is calculated, and the
establishment survey, which reports on the jobs added and lost each month.

Though the monthly jobs numbers can be volatile and subject to subsequent
revisions, they are a crucial economic indicator. Understanding what the
Employment Situation Summary measures, and why, is a must for investors and
policymakers seeking to assess the state of the U.S. economy.

The nonfarm payroll (NFP) report is a key economic indicator for the United States
and represents the total number of paid workers in the U.S. excluding those
employed by farms, the federal government, private households, and nonprofit
organizations.

The NFP report is typically released on the first Friday of each month, providing the
total monthly increase or decrease in paid U.S. workers across most businesses.1
Increasing numbers may show economic expansion but may also give investors
reason to be concerned about inflation and decreasing numbers suggest a broader
economic concern.

The Establishment Survey

The establishment survey, formally called the Current Employment Statistics

Survey, gathers data from approximately 131,000 nonfarm businesses and
government agencies for some 697,000 work sites and about one-third of all payroll
workers. The survey is based on the weekly pay period that includes the 12th day of
the month.

Anyone on the payroll of a surveyed business during that reference week, including
part-time workers and those on paid leave, is included in the count used to produce
an estimate of total U.S. nonfarm payrolls.

Farm workers are not included because of agriculture's seasonal nature; the sector's
reliance on self-employment, unpaid family work, and undocumented workers; and
its partial exemption from unemployment insurance requirements, since those
records are used to compile the survey sample. The payroll data also does not include
self-employed workers.

The establishment survey provides estimates for nonfarm payrolls, average weekly
hours worked, and average hourly and weekly earnings nationwide as well as by
state and metropolitan area, and by industry. The report also tallies the hours worked
and earnings of production and nonsupervisory employees.

The Household Survey

The household survey is based on monthly interviews of 60,000 households

conducted for the BLS by the U.S. Census Bureau. Survey participants are asked
about their employment status during the week including the 12th day of the month.8
The most prominent product of the household survey is the official, or U-3,
unemployment rate, calculated as a percentage of the unemployed actively seeking
work relative to the labor force, or the sum of the employed and the unemployed. To
be officially counted as unemployed, the survey respondent has to have been
available for work in the reference week and made specific efforts to find work
during the four prior weeks, unless awaiting an expected recall from a layoff.

Photo by BARB

The report provides alternative measures of unemployment and underemployment

including discouraged workers who would like a job but have stopped looking for
one and those who would like a full-time job but are working part-time, as well as
rates for job losses during the month and those unemployed 15 weeks or longer.
The proportion of the labor force relative to the civilian noninstitutional population
is known as the labor force participation rate, also specified in the household
survey data.

While the household survey doesn't include children under the age of 16, it covers
several categories of workers not counted by the establishment payrolls survey,
including the self-employed, farm workers, household employees, and unpaid
family workers. As such, it is a more comprehensive measure.

The smaller sampling size of approximately 60,000 as opposed to the

establishment survey's coverage of one-third of the labor force, means the
household survey's measure of employment is less precise. The threshold for a
statistically significant employment change in the household survey is 500,000,
versus 100,000 in the establishment survey.

What Is a Healthy Unemployment Rate?

Low unemployment is not considered healthy, as lower rates can be seen as

inflationary due to pricing pressure on salaries; however, high unemployment is not
considered healthy, as higher rates can be seen as a financial strain on consumer
spending. In general, most experts deem unemployment between 3% and 5% to be
ideal, though there is no single consensus on what constitutes healthy
unemployment.

Economic Analysis of Employment Report

The nonfarm payrolls number and the unemployment rate are headlines of the
“Employment Situation” report but economists and policymakers use all of the
available data for assessing the current state of the economy and forecasting future
levels of economic activity. The report contains many valuable insights into the labor
force that have a direct impact on the economy as well as the stock market, the value
of the U.S. dollar, the value of Treasuries, and the price of gold.
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https://www.investopedia.com/terms/j/jobsgrowth.asp
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https://www.investopedia.com/terms/j/jobless-claims.asp
https://pages.stern.nyu.edu/~nroubini/bci/AverageHourlyEarnings.htm
https://www.investopedia.com/terms/u/unemploymentrate.asp
https://www.investopedia.com/terms/n/nonfarmpayroll.asp
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