The calculation of unemployment rates comes from a relatively small sample of households (household survey), whereas the monthly jobs created numbers are derived from surveying a much larger number of businesses (establishment survey).
Each report is directionally accurate over time but shouldn't be relied upon for monthly precision. That's because each is better at revealing trends over time than delivering precise results on a monthly basis.
First, we'll review what the surveys disclosed concerning job creation and employment conditions during October and recent months. Why Did the Unemployment Rate Drop? says this:
"The U.S. added 80,000 jobs in October, not even enough to account for the roughly 100,000 new entrants to labor force every month, but the unemployment rate dipped slightly to 9% from 9.1% and a broader unemployment rate fell even more to 16.2% from 16.5%. Why?
The number of jobs added comes from a survey of establishment payrolls. The unemployment rate comes from a separate survey of U.S. households. The household survey is much smaller than the establishment survey, and as a result it can swing around a lot — and move the unemployment rate up and down when it does. That volatility is a big reason why economists usually, but not always, pay much more attention to the establishment report.
In October, the household survey showed the number of people with jobs rose by 277,000, while the labor force — the number of people working or looking for work rose by a smaller 181,000. There were more new people working than entering the labor force, so the rate dropped.
The household survey also includes workers that don’t show up in the establishment survey, like farmers, the self-employed and people who work without pay.
The rate of job creation looks better in the household survey, where the number of people employed has risen by more than 300,000 a month over August, September and October, compared to an average gain of 114,000 in the establishment survey over the same period."
Labor market may be better than we think has the following somewhat optimistic take on Friday's unemployment report.
"It’s not well-understood that the monthly employment report is actually derived from two separate surveys — one of businesses and the other of households.
The two surveys are telling different stories right now. While the survey of businesses says hiring is anemic, the household survey is showing the best employment gains in nearly five years. Over the past three months, the business survey says nonfarm payrolls have risen by 342,000, but the household survey says employment has risen by 1 million.
If the government reported only the results from the household survey, we’d all think that the labor market had turned a corner."
Later the writer cautions against relying too much on the good news contained in the household survey:
"Usually, economists and financial markets pay more attention to the business survey. It’s more reliable, in part because the sample size is larger: 440,000 work sites vs. 60,000 for the household survey.
But the household survey has some advantages and shouldn’t be completely ignored, especially over longer periods of time such as three or six months.
For one thing, the household survey picks up on the formation of new companies much faster than the business survey can. Typically in recoveries, the household survey presents a more accurate picture of the health of the job market, as can be seen when the business survey is revised each year to match actual payroll tax reports.
Let’s be clear: Our jobs crisis is a long way from being solved. The unemployment rate is 9%, and the underemployment rate is 16.2%. It’s no time to celebrate. Read Rex Nutting’s column on ‘Full employment is 12 years away’.
But maybe — just maybe — things are improving more than we thought."
On that somewhat optimistic note, we'll end today's lesson on employment surveys, unemployment and jobs creation. The point is that while we should not rely upon these surveys for more information than they are capable of imparting, we need to follow the monthly reporting for solid guidance with respect to where our economy is headed.
Of course, directionally the U.S. economy is going nowhere fast today. But let's hope the private sector picks up the pace soon and starts growing faster and faster.
If and as the private sector leads the way, lots of jobs will be created in the process. That in turn will help us out of our self-inflicted financial mess. Even the politicians.
Of course, the foregoing assumes that the politicians won't act to make an already difficult job for the private sector even harder.
Thanks. Bob.
No comments:
Post a Comment