What you need to know about the employment report


The Bureau of Labor Statistics (BLS) publishes the Employment Status Summary, also known as an employment or employment report, at 8:30 am EST on the first Friday of each month. The report is based on the Current Household Population Survey and the Current Employer Employment Statistics Survey. Calculate the number of employed and unemployed people in the economy, the number of hours they worked (plus a myriad of related figures).

The data is widely anticipated. Many investment firms issue estimates of these employment figures and, in turn, these forecasts are used by business decision makers. The report can affect corporate confidence and therefore future business and hiring decisions.

Key takeaways

  • Each month, the Bureau of Labor Statistics (BLS) publishes the Labor Situation Summary, which estimates figures related to employment and unemployment in the United States.
  • The report consists of two main components: the household survey and the establishment survey.
  • Investment firms, corporations, and investors use the employment report to measure the overall health of the economy.
  • Bond markets look to the report for what it might say about inflation and interest rates.
  • Currency markets watch the report for signs that may affect the value of the US dollar.

What the employment report doesn’t say

The report is scrutinized for what it has to say about the state of the economy. The number of jobs that are created can mean whether an economy is improving, overheating, or declining. Unfortunately, since the figures often receive significant revisions long after their initial publication, the Summary of Employment Situation is not as predictive as it is a historical documentation of economic conditions, on the premise that these conditions still exist and could continue. during the future. foreseeable future. Also, numbers can have unexpected changes from month to month, and predictions deviate from target for many months in a row.

For example, in a post-recession scenario, new jobs created could be well below what economists predicted. Then there could finally be a month in which the report shows that three times more jobs were created than expected, prompting markets to speculate on whether the Federal Reserve will raise interest rates. Next month, however, the report could bring in terribly low numbers, and information from business and household surveys could become increasingly divergent, compounding economists’ exasperation over the report’s lack of predictability.

Uncertainty aside, in relation to other indicators related to employment and the economy, the Summary of the employment situation provides valuable information. In particular, a trend of unexpected reports often indicates that something unusual is happening with the economy and employment.

Who uses the employment status summary?

Historically, the currency and bond markets have been the hardest hit by the Labor Situation Summary. This was demonstrated in a 1995 study by the Federal Reserve Bank of New York, which pointed out several ways in which employment data impacted the currency market. An unexpected rise in employment, for example, can cause the US dollar to strengthen. The study also reported that reactions to surprises have implications for short-term interest rates. The forex market has become increasingly sensitive to the data in the report and pays special attention to the survey of establishments.

Similarly, any report that may affect the future course of monetary policy will affect bond markets. The bond market is concerned about what the report may say about inflation and interest rates. A strong employment report may indicate an economy that is heating up too fast, leading economists and traders to worry about inflationary pressure. However, it can also raise concerns about tighter monetary policy and upcoming interest rate hikes. The equity market is looking for increased employment as a sign of business optimism and growth potential. It also deals with inflation and interest rates, but to a lesser degree.

Employment surveys

The names of the two employment surveys indicate the facets of the population they cover. The Household Survey interviews 60,000 households, while the Establishment Survey collects data from 145,000 businesses and government agencies covering 697,000 workplaces, or about a third of all workers on the payroll. While the Work Status Summary is published monthly, the surveys actually cover only a single pay period that includes the 12th of the month.

Both surveys have their merits and drawbacks. The household survey includes almost all types of employed people, including the self-employed, agricultural workers and even those who work at home as a family. The establishment survey includes only employees of companies that provide payroll counts. So although the survey sample is large, the establishment survey does not include a significant demographic and can misrepresent the employment rate when the number of self-employed workers reaches extremes. The household survey, however, covers only 60,000 households and is often criticized for being volatile due to the relatively small sample size.

The business cycle

The number of freelancers can fluctuate significantly throughout the business cycle. Recession, layoffs, and tight labor markets can lead many people to start their own business. Many skilled workers become consultants and it is common for people to consult their former employers. These people are often not taken into account in the establishment survey and the increase in the number of consultants tends to exaggerate the unemployment rate.

On the contrary, when the economy begins to accelerate and companies begin to hire again, many freelancers decide to return to payroll to obtain constant wages and benefits. At such times, the divergence between the household and establishment surveys could be reversed.

Another factor that impacts the payroll survey and not the household survey is the employee turnover rate. Every time someone changes jobs within the reporting period, it is counted twice, once for each employer. This happens all the time, so it shouldn’t have much influence on the change in employment figures from month to month. However, over longer periods, the turnover rate can vary throughout the business cycle. One theory is that turnover slows during the early part of the economic recovery because workers are sensitive to layoffs and therefore want job security.

Survey components

Both the establishment survey and the household survey consist of several components that are incorporated into the Summary of the employment situation:

The Household Survey

  • Unemployment: the number of unemployed people and the unemployment rate.
  • Total employment and active population: total number of people employed and proportion of the population aged 16 and over that is working. The report also includes data on the number of people employed part-time for financial reasons.
  • People who are not part of the workforce: number of people marginally linked to the workforce. These are people who want to work and have looked for work in the last 12 months, but not in the last four weeks. They are not counted as unemployed. This component also reports the number of discouraged workers who believe there is no job available for them.
  • Reports issued during the COVID-19 pandemic have included supplemental household data such as the percentage of people who telecommute, the number of people who are unable to work due to the impact of the pandemic on their employer, and similar information.

The establishment survey

  • Industrial payroll employment: total employment and sector-specific employment statistics.
  • Weekly Hours: The average workweek for production and non-supervisory employees, and the hours worked by employees in manufacturing.
  • Hourly and Weekly Earnings: Average hourly and weekly earnings for production and non-supervisory employees.

The bottom line

While the Job Situation Summary can be volatile and subject to major revisions long after the fact, it remains a widely observed indicator of economic well-being. And the figures it provides on employment directly influence financial markets. The number of new jobs created provides clues to the economy and corporate earnings and indirectly provides information on interest rates and currency prices.

www.investopedia.com

READ ALSO:  Net present value vs. internal rate of return
About the author

Mark Holland

Leave a comment: