Employment Situation

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The Economic Times  Jul 13  Comment 
The draft report has suggested a host of recommendations to help the government collect more reliable, timely and relevant labour market data which is essential for appreciating employment situation.
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BRUSSELS/FRANKFURT/PARIS (dpa-AFX) - Wall Street stocks may get off to a racing start on Friday, leaving behind a few lackluster days in the week. The market is pinning hope on the rebounding crude oil prices and closely watching the monthly...




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The Employment Situation Report is a compilation of two separate surveys and provides information on 1. change of unemployed people working in the U.S. as a percentage of the labor force 2. the number of new jobs created 3. non-farm payroll employment 4. average number of hours worked each week and 5. the average compensation earned by employees for the hours worked. The report is prepared by Bureau of Labor Statistics and serves as an economic indicator to determine the 'tightness' of the labor market.[1]

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An average gain of 150,000 monthly payrolls is considered as healthy for an economy that is in the mature phase. As for an economy that is in its early stages of recovery, monthly payrolls gain is expected to exceed 250,000 per month.[2]

Measures of the Employment Situation Report

The Employment Situation Report, also known as the Labor Report, is made up of two separate surveys. The 'establishment survey' collects data from a sampling of more than 400,000 businesses across the country, covering more than 500 industries and hundreds of metropolitan areas. The survey encompasses one-third of all non-farm workers nationwide. The final statistics include non-farm payrolls, hours worked and hourly earnings.

The establishment survey is theoretically more accurate since its sample size is larger, but it excludes private households, the self-employed and agricultural sector.

The second survey is called the 'household survey'. It produces a figure of the total number of individuals who are out of work as a percentage of the labor force from a sampling of more than 60,000 households. The data is collected by the U.S Census Bureau with assistance from the Bureau of Labor Statistics.

The household survey may be more subjective due to its smaller sample size. However, the survey includes self-employed workers and this figure may be more valuable if one wants to track how many people are starting their own business. This scenario usually occurs during the early expansion of the economy. [3]

Why is it important

This report is considered as the economic report that has the most influence on market movements, due to its comprehensiveness. It contains data of how many people are searching for jobs, how many are employed, how much are they getting paid for and how many hours do they work. Investors look for trends in disposable income, wage inflation and employment statistics from this report. If payroll is increasing and wages are rising, this indicates that personal consumption will advance as well. This information is important to industries like the retail industry.[4]

Average Weekly Hours as a leading indicator

Average weekly hours released from the establishment survey is considered as a leading indicator because it gives us an idea of which part of the business cycles we are currently in. When companies are doing well and expanding, average weekly hours tend to increase because companies usually first stretch the hours of their current workforce before they decide to hire new workers. Hence, an increase in this figure can signal an economic expansion.[5]

Non-farm payroll employment count as a concurrent indicator

Non-farm payroll counts the number of paid employees who are working part-time or full-time in the nation's business and government establishment. This figure is considered as a a concurrent indicator because it indicates the current level of economic activity. This figure has also been accurate in predicting business cycles historically.[6]

The non-farm payroll employment count is crucial to Wall Street as it is the benchmark labor statistics that is used to determine the health of the job market. Economists benchmark 150,000 jobs as the level that defines economic growth. An addition of 150,000 jobs or more is considered expansion of the labor force, while anything below this number signals a weak job market.[7]

Unemployment Rate as a lagging indicator

Unemployment figures collected from the household report are considered as a lagging indicator. This is because corporate layoffs usually happened after problems in the economy much like the 2007 credit crunch have manifested themselves in declining economic output.

References

  1. About.com: Investing for Beginners
  2. Fox Business: Non-Farm Payrolls Decline 247,000 in July; Unemployment Rate Drops to 9.4%
  3. Investopedia: Economic Indicators
  4. Investopedia: Economic Indicators
  5. Investopedia: Economic Indicators
  6. Econoday: 2010 Economic Calendar
  7. Investopedia: Economic Indicators
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