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What is Jobs Day?
Jobs Day is the econ dorks' nickname for the first Friday of every month when the Bureau of Labor Statistics releases its monthly Employment Situation Report at 8:30 AM.
The Employment Situation Report tells us what the unemployment rate is, and also how many jobs the economy added (or lost) over the previous month. It also offers revisions to the previous two months' worth of jobs numbers.
These two numbers actually come from two different surveys that just so happen to be released at the same time. The unemployment rate is calculated based on the household survey, while the total number of jobs is calculated based on the establishment survey.
What's the household survey?
The household survey is also known as the Current Population Survey and it's basically a big poll. The BLS calls people up and asks them questions about a variety of issues that are relevant to assessing the labor market. For example, they ask whether you have a job. If you don't have a job, they ask whether you're looking for a job. If you do have a job, they ask how many hours you're working. If you're working part-time, they ask if you'd like to have a full-time job.
Most importantly, this lets you calculate the unemployment rate-the number of currently jobless people actively looking for work people divided by the total number of people who are either working or actively looking for work.
The reason for this survey is that a lot of important labor market concepts require us to know how people feel about their current labor market situation. An increase in the number of people who want part-time jobs is one kind of issue for the economy. An increase in the number of people who are having trouble getting as many hours of work as they would like to have is another kind of issue. People retiring early amidst a booming stock market is different from people leaving the labor force because they've been unable to find a job after a year of searching.
Another advantage of the household survey is that it allows freelancers, consultants, and small-time entrepreneurs to register themselves as working even though they don't have an employer. The main drawback of the household survey is that it has a margin of error of 400,000 jobs. That means it's hard to distinguish short-term economic changes from random survey error.
What's the establishment survey?
The establishment survey is a survey of workplaces where the BLS asks how many people are working at any given facility.
The big advantage of the establishment survey is that has a smaller margin of error than the household survey-only 100,000 jobs rather than 400,000-which makes it more useful for tracking month-to-month fluctuations. Another useful element of the establishment survey is it gives us a clearer picture of where employment is rising or shrinking. Are more people getting jobs in hospitals? In factories? In restaurants? In stores? Ask the establishment survey.
What is the labor force participation rate?
The labor force is defined as all the people who currently have jobs plus all the people who say they're currently looking for work. The labor force participation rate (LFP) is the labor force divided by the entire population. So if there are 300 million Americans and 200 million are employed or looking for work than the labor force participation rate is 67 percent.
Starting in the mid-1960s this indicator rose fairly steadily as women joined the workforce. But after peaking at around 67 percent in 1999-2000 it has tended to decline. LFP decline has been especially steep since the financial crisis and is currently just above 63 percent, a level not previously seen since the late 1970s.
What is the unemployment rate?
The unemployment rate is the number of number of people looking for a job divided by the total size of the labor force. This means that the unemployment rate often misses a lot of discouraged people who have stopped looking for work but would love a job if they could find one.
The flipside of the unemployment rate is the employment rate, the ratio of people with jobs to the total size of the labor force. It is rare to hear anything about the employment rate. Instead, a more commonly discussed statistic is the employment-population ratio-the ratio of people with jobs to all people, including children, retirees, homemakers and others who aren't in the labor force.
The unemployment rate rose sharply in the wake of the 2008 financial crisis, and has been falling since 2010.
What are the other unemployment rates?
The main unemployment rate that you hear about is what the Bureau of Labor Statistics dubs U3 — unemployed workers divided by the total labor force, with the labor force defined as employed people plus currently jobless people who are actively looking for work.
But there are alternative unemployment rates you can also measure:
- U4 counts so-called discouraged workers as also unemployed. These are people who say they've given up looking for a job after a period of effort and failure.
- U5 starts with U4 but additional considers marginally attached workers-people who aren't looking for a job but who claim that they would like to have one-to be unemployed.
- U6 starts with the U5 concept of unemployment but also counts part-time workers who say they would prefer a full-time job as unemployed. Since the U6 rate is the broadest rate, it's the most commonly cited alternative.
Naturally, at all times the U6 unemployment rate is higher than the U3 rate. But during the current recovery the gap has been unusually large due to an increase in the number of discouraged and marginally attached workers during a period of prolonged economic weakness
Why do people pay attention to jobs day?
Fundamentally, jobs day matters because employment matters. A strong labor market is good for the country and a weak labor market is bad news.
In a secondary sense, jobs day is a big deal because it matters to financial markets. A surprising employment situation report leads investors to update their thinking about the state of the economy and also their ideas about the Federal Reserve's next move. The jobs report moves financial markets. It also becomes a political football during election years, as good jobs reports are thought to reflect well on the incumbent president while bad jobs reports reflect poorly on him.
Last but by no means least, jobs day is a media event. Because the report's release is utterly predictable but its contents are unpredictable, every jobs day is eagerly awaited by econ enthusiasts on Twitter. The headline data is processed in minutes, and fairly deep analysis can be expected within half an hour.
Is the jobs report even accurate?
The employment situation report really is the most important and most accurate piece of big picture economic data that we get on a month-to-month basis. That said, this is a bit like the warmest day in Antarctica-the information simply isn't that informative.
Compared to the over 130 million jobs in the United States, the establishment survey's +/- 100,000 jobs margin of error is quite small.
But relative to the change in employment in a typical month, it's a pretty huge margin of error. Blindly guessing that next month's report will say the economy added 100,000 jobs will put you within the margin of error about 85 percent of the time.
Another way of looking at it is that any given month's jobs number is revised several times in subsequent months. On average, the final number is 90,000 jobs more or less than the original numbers. We should, however, distinguish these concerns about survey error and revisions from conspiracy theories about manipulation of the numbers for political purposes.
Measuring the economy in real time is hard. Ignoring the jobs report is foolish, but overreacting is equally foolish.
What’s up with seasonal adjustments?
The labor market is subject to a lot of calendar-based fluctuations driven by things like holiday season demand, summer vacation from school, and the difficulty of undertaking construction projects in cold weather. To see the difference, check out this chart:
The blue line is the jobs number you normally see reported in the media. The red line is what's actually happening. The blue line shows three years of slow-but-steady job growth. The red line shows annual depressions in January when stores lay off their holiday hires and small recessions in the fall when kids go back to school.
The BLS creates the blue line by applying an algorithm to the data charted on the red line. So if job losses are smaller-than-usual in January, the seasonally adjusted series will show an increase in employment. If jobs gains are smaller-than-usual in December, the seasonally adjusted series will show a decline in employment.
The blue line is more useful for assessing macroeconomic conditions, which is why it's the one people talk about. But it's also a statistical construct — a mathematical model based on past experience — that can get things wrong when the underlying structure of the economy shifts or even if unusual weather skews the model.
What's the best way to read the jobs report?
The most solid piece of information in any monthly jobs report is the revisions made to the previous two months' data. So the best way to tell whether the news is bad or good is to look at those. An upward revision is better than a downward revision, of course, but it's actually where the revisions end up that matters. If the jobs report tells you that the economy added a lot of jobs two months ago, that's a solid datapoint that you can take to the bank.
On the household survey, the unemployment rate is obviously interesting. But in some ways it's even more illuminating to look at the size of the labor force. To an extent this is driven by broad social and demographic trends. But on a month-to-month basis, a strong economy should be pulling more people into the labor force while a weak economy pushes them into early retirement or extra years of school. Since it's the existence of data on the size of the labor force that makes the household survey valuable, you might as well zero-in on that.
