💡The Confusion with Unemployment

Issue 119

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Today’s Bullets:

• The Numbers

• Household vs. Establishment

  • Inconsistencies and Assumptions

• Recession Red Flags

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Inspirational Tweet:

Unemployment.

Perhaps the most scrutinized, yet confusing, set of economic data that the BLS and other agencies regularly measure. We have the Employment Situation Report, the JOLTS Report, the Unemployment Claims Report, U-6 Employment Situation Report, ADP, Labor Market Conditions Index, and more.

If all this has your head spinning…don’t worry, we are going to focus on the most recent one—the Employment Situation Report—today.

And we will likely cover the other reports as they are released in the coming weeks and months.

We will answer questions like, which numbers are most important, why are there inconsistencies, and what are they possibly telling us about a pending recession?

And we will keep it all simple and quick, nice and easy, as always.

So, grab your favorite cup of coffee and settle into that comfortable chair for a jobs analysis session with The Informationist.

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🤓 The Numbers

First, the report we received this week was the Employment Situation Report, also just referred to as the jobs report.

Administered and reported by the Bureau of Labor Services (BLS), the jobs report gives us a host of data, some more important than others.

The report is separated into two surveys: The Household Survey and the Establishment Survey.

Some of you may have already heard there’s been inconsistencies between these two surveys, and we will get to that. Let’s first just see what they each tell us.

The Household Survey is a survey of approximately 60K households (no, not the entire population…can you even imagine the government pulling something off like that?😂), and this section focuses on the labor force status, including the unemployment and employment participation rates.

In the Household Survey we have:

Unemployment Rate: percentage of the labor force actively seeking employment but currently without a job

Number of Unemployed: total number of people available and actively looking for work

Labor Force Participation Rate: proportion of working-age population that is either employed or actively seeking employment

Employment-Population Ratio: proportion of working-age population that is currently employed.

Number of Long-term Unemployed: number of people who have been jobless for 27 weeks or more (aka persistent unemployment)

Persons Employed Part-time for Economic Reasons: number of individuals working part-time because they cannot find full-time employment

Marginally Attached Workers: those who want and are available for work but have not searched for a job in the last four weeks (aka couch potatoes)

The Establishment Survey is about 2X the size of Household’s, as the BLS collects data from approximately 122K businesses and government agencies that should reflect similar patterns to the Household Survey. Such as:

Total Nonfarm Payroll Employment: measures the monthly net change in the number of jobs in the economy (Nonfarm means it excludes farm work, unincorporated self-employment, and nonprofits)

Industry-Specific Trends: measures which sectors are gaining or losing jobs

Average Hourly Earnings: the average amount employees earn per hour

Weekly Hours: average number of hours worked per week

Revisions: adjustments to previous months' employment data

On top of all of this, we also get data that details demographics, such as sex, age, race, etc. as well as education status and other details.

But we will keep this big picture for today, in order to analyze the data for overall economic trends and signs of recession.

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🧐 Household vs. Establishment

Ah, yes. Fertile ground for conflict when you ask two separate people (or entities) the same questions.

It can produce inconsistencies.

Like this:

Where households are saying they are struggling to find jobs while businesses claim they are hiring.

Causing nothing but confusion.

This is where main stream media often lacks critical thinking necessary to make sense of what we are being told.

They read the ‘headline jobs number’ and just run with it, without digging into the underlying numbers at all.

Shocking, I know.

Let’s do it differently, shall we? Let’s put those wrinkles on our brains to use by reviewing and looking into key data from each report:

Household Survey Data

• Unemployment Rate: 4.0% (vs 3.9% in April)

• Labor Force Participation Rate: 62.5% (vs 62.7% in April)

• Persons Employed Part-time for Economic Reasons: 4.4 million (-50K from April)

Establishment Survey Data

• Total Nonfarm Payroll Employment: +272,000 (vs 165K in April)

• Average Hourly Earnings: +4.2% year-over-year (+ 0.3% from April)

• Average Weekly Hours: 34.4 hours (unchanged from April)

And the result?