On the first Friday of each month, a much-anticipated report is released by the Bureau of Labor Statistics. "The Employment Situation Survey," commonly called the jobs report, has the power to move markets because it is generally considered a key indicator of the health of the U.S. economy.
April extended a stretch of very positive employment numbers, with 164,000 new jobs created during the month. That was slightly below the average of 191,000 for the past 12 months, but quite respectable this late in a long expansionary cycle. Perhaps more interestingly, the unemployment rate fell to a 17-year low of 3.9 percent, well below the level economists think of as full employment. One key to understanding the low unemployment rate is the relentless decline in the percentage of Americans of employable age who are in the labor market, referred to as the labor force participation rate. That number has declined from 67.3 percent in 2000 to 62.8 last month.
Those numbers are heavily reported each month. But as important as the jobs report has become, few people outside the financial markets (and too few within) understand how the data is collected and presented in the monthly readout.
The Bureau of Labor Statistics was created in 1884 to compile data on employment, wages and prices in the U.S. economy. One of its first important reports was an 1891 study of the impact of tariffs on jobs and wages (turns out we knew in the 19th century that trade wars are bad and hard to win).
The jobs report is a compilation of two monthly surveys conducted by BLS employees. The first is a sampling of 390,000 employers, called the Current Employment Statistics Survey but commonly known as the "establishment survey." The bureau contacts business establishments each month regarding the number of private non-farm jobs, hourly wages, and hours worked. From this sample, an estimate of jobs created or lost in the economy is interpolated (164,000 in April). This is one of the two headline numbers that gets the most attention from investors.
The other main survey, the Current Population Survey, is broadly known as the "household survey." For this one, the BLS contacts around 60,000 individual households and asks how many residents have a job, are looking for a job, and whether they are working full or part-time. The household survey generally has a higher margin of error than the establishment report, but it picks up data on contract workers and the self-employed that do not show up in the business survey. This report is the source of the estimated unemployment rate (3.9 percent in April).
These two sources are compiled together and reported in what has become something of a ritual, with competing forecasters providing their own pre-game estimates moments before the official announcement at 8:30 a.m. on the first Friday of each month. Substantial variances from consensus level forecasts often make for a rocky start to trading on the exchanges.
A third, lesser-known but equally important monthly release by the BLS is the Job Openings and Labor Turnover Report (JOLTS). This survey includes a sampling of 16,000 employers who report hirings, terminations, and help wanted. JOLTS paints a picture of potential labor shortages among employers seeking to hire. The May report tallied a record 6.6 million job openings currently unfilled.
These important BLS reports paint a somewhat puzzling view of the labor market. The low unemployment rate and high level of job openings suggest a relatively strong economy. But the data also present a conundrum confounding economists: despite strong demand for workers, wages are stuck in neutral.
Next week, a look closer at the wage puzzle.
Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.