Employment Report – Nonfarm Payrolls – Easy Trends (thru May 2013)
Employment report figures are perhaps the most closely tracked economic numbers of all. I’m continuing a feature called “Easy Trends” – a place where I’ll analyze the recent trend for the nonfarm payrolls from the monthly employment report and discuss whether it is currently going up, down or neither. You can read the basics of my methodology on the FAQ page.
NOTE: You may be reading an outdated analysis. Please visit my latest Employment Report trend analysis for more info.
Quick ‘n Easy
Nonfarm payrolls, a component of the employment report called “Employment Situation Summary,” is meant to measure the number of jobs in the economy except for those in the farming industry. The large ups and downs in farming make it harder to see the true underlying trend, so jobs in that sector are excluded. What people usually focus on is the change in nonfarm payrolls from the previous month. We typically want to see something above 150,000 during average economic times. (Easy Intro to Nonfarm Payrolls)
Nonfarm payrolls from the employment report is meant to measure the number of jobs in the economy except for those in the farming industry. The large ups and downs in farming make it harder to see the true underlying trend, so jobs in that sector are excluded. What people usually focus on is the change in nonfarm payrolls from the employment report for the previous month. We typically want to see something above 150,000 during average economic times. You can read more in my Easy Intro to Nonfarm Payrolls.
I have decided to analyze the two different methods the Bureau of Labor Statistics uses in estimating the number of new nonfarm payroll jobs added per month in its employment report. The one that most articles quote is from the “Payroll Survey” (a survey of businesses). The second one is from the “Household Survey” (survey of households, duh!). Because the “Household Survey” includes a whole bunch of workers who aren’t included in the “Payroll Survey” the BLS has to adjust the data a bit to help them match up. In the end, they should track each other fairly well. Nevertheless, I felt it would be helpful to look at the trends from both of them. In fact, my personal preference is to look at the average of the two to get a better estimate of the true trend of job creation.
Below is a graph showing the trends in both the “Payroll Survey” and the “Household Survey” after adjustments were made to the latter to represent a similar population. As you can see, they track each other fairly well after adjustments (see the unadjusted data in a line that’s way above the others):
Employment Report Trends and Projections
Below, I will discuss whether the nonfarm payrolls number from the employment report is currently in a trend, when the last confirmed trend was and what that says about projecting the next data point to be released.
Employment Report Trend Analysis
Quick ‘n Easy
The trend of the average of the two surveys (my preferred metric) shows about 180,000 jobs being added per month from Oct 2010 thru May 2013. The average of the two surveys showed a net gain of about 260,000 jobs in May – very strong. The various details for the latest report were generally slightly positive. This was a reassuring report after last month’s more disappointing figures. Clearly, we have job growth but not at a pace that is necessary to make a rapid difference for the millions who lost their jobs in the Great Recession.
Here is a chart of the recent trends:
|Payroll Survey||Household Survey (Adjusted to Allow Comparison)||Average of Payroll and Household|
|Current Trend: Feb 2012 – May 2013. During that time, there was a confirmed upward trend with payrolls rising by 173,000 per month.||Current Trend: Oct 2010 – May 2013. During that time, there was a confirmed upward trend with payrolls rising by 181,000 per month.||Current Trend: Oct 2010 – May 2013. During that time, there was a confirmed upward trend with payrolls rising by 180,000 per month.|
|Last Confirmed Trend: Dec 2011 – Feb 2012. During that time, payrolls were rising by 285,000 per month.||Last Confirmed Trend: Feb – Aug 2010. During that time, payrolls were rising by 171,000 per month.||Last Confirmed Trend: Aug – Oct 2010. During that time, payrolls were falling by 71,000 per month.|
|Projected Change Next Month: +110,000 jobs for June 2013 (excluding any off trend data points)||Projected Change Next Month: +208,000 jobs for June 2013 (excluding any off trend data points)||Projected Change Next Month: +181,000 jobs for June 2013 (excluding any off trend data points)|
The employment report for May 2013 had a headline number (based on survey of businesses) that was slightly better than expectations (+175,000 net jobs added in May versus an expected +167,000 or so). My own preference is to look at the average of the changes in the Payroll Survey (survey of businesses) and the adjusted version of the Household Data (survey of people) to see the underlying trends in the number of employed people. Looking at it that way, last month we gained 260,000 net jobs, and we’ve been adding 180,000 jobs per month from Oct 2010 thru May 2013. The latest report’s figures were in line with the pre-existing rising trends. Since we need about 150,000 jobs per month to keep up with the growing workforce, that means for two-and-a-half years, we’ve been adding slightly more than what’s needed. There’s no way that has (or will) put a dent in the massive numbers of people who lost their jobs during the Great Recession.
In addition to the headline change in jobs, there are several other elements of the report it’s always good to look at:
|Statistic||Basic Definition||Monthly Change||Assessment of Latest Month’s Change||Comments|
|Unemployment Rate (Official)||Percentage of job-seekers who have no job||(+) 0.1 pct, now at 7.6 pct||Negative||Though not good news, this happened with more people looking for work (see “Civilian Labor Force” below). It’s harder for this percentage to improve (decrease) when more people seek work.|
|Revisions to Previous Months||Data are always being revised to improve accuracy||The previous two months were revised downward by a net 12,000 jobs.||Neutral||Data for any one month are usually revised over the next two months, so those revisions resulted in a net loss of 12,000 jobs for the previous two months this time – not really affecting much.|
|Civilian Labor Force||Number of Americans eligible for and seeking work||(+) 420,000||Positive||It’s better to see more people looking for work. This was an extremely strong gain to add on to a healthy rise last month.|
|Participation Rate||Americans who want to work as pct of all available||(+) 0.1 pct, now at 63.4 pct||Positive||It’s still well below the 66-67 pct of normal years in the recent past, but at least it did gain versus last month. It’s down 0.4 percent since Oct 2012.|
|Employment-Population Ratio||Americans who are employed as pct of all available||Unchanged at 58.6 pct||Neutral||We want this number to increase, but it stayed put this time.|
|Diffusion Indexes||Degree to which gains in employment were widespread. The further above 50, the wider spread gains are. The further below 50, the wider spread losses are. (1-month means we are comparing current jobs to 1 month ago, for example)||1-month index: rose 4.2 this month to 59.8
3-month index: dropped 5.1 this month to 60.3
6-month index: dropped 0.6 this month to 67.3
12-month index: rose 0.8 this month to 70.5
|Neutral||These numbers suggest that the gains in employment were about as widespread this month as they were last month. Fortunately, they are still somewhat widespread (average across all time points is about 64.5, which means gains are nearly twice as prevalent as losses.|
|Weekly Hours Worked (Aggregate Index)||Measure of how many hours workers put in (total, not per worker)||(+) 0.1 pct vs last month||Positive||Although hours worked are already factored into “weekly payrolls” (below), we prefer to see the hours worked go up separately because companies will often increase worker hours before they are ready to hire more workers. But keep in mind, this is a total – not per person. I’m analyzing from the standpoint of the overall economy, not at a personal level.|
|Weekly Payrolls (Aggregate Index)||Measure of how much money workers take home (total, not per worker)||(+) 0.2 pct vs last month||Positive||This is a decent sign for personal income levels, but keep in mind this is a total – not per person. I’m analyzing from the standpoint of the overall economy, not at a personal level.|
This report was generally positive overall in terms of the direction things are moving. The Payroll Survey, Household Survey and the average of the two all suggest that May continued a modest growth trend that we’ve seen for two-and-a-half years now. The internal details tell an overall slightly positive story. We have a confirmed upward trend in nonfarm payroll jobs as assessed by both the Payroll Survey and Household Survey (adjusted), including the average of the two surveys. It’s just that the rate of rise is not what we need it to be. The end result is still positive.
It’s extremely unlikely that we were in a recession during May 2013 with numbers like these (i.e., rising trends). Keep in mind though, jobs numbers are usually a lagging indicator. They do not typically predict what is coming.