This morning the federal government released the latest jobs report. You may have noticed confusing headlines and reporting about the data, such as this story from NPR, “Job Growth Less Than Expected, But Unemployment Hits 5-Year Low.” What does that mean? Is that bad news mixed with good news? How should we interpret the jobs report?
Here’s what you need to know to understand what the job report is, what it tells us, and what it means for the economy:
What is the “jobs report”?
The “Jobs Report” is the term often used to refer to the Employment Situation Summary, a monthly report issued by the Bureau of Labor Statistics that is based on surveys used to monitor the labor market. This report is released on the first Friday of every month.
Why is the jobs report considered so important?
The jobs report consists of several important economic indicators (statistics about an economic activity) that help employers, investors, and policymakers predict where the economy is heading. For instance, if the jobs report shows the economy is adding more jobs it’s a sign that the economy may soon be growing since more people have incomes and money to spend.
What’s in the Jobs Report?
The Employment Situation Summary consists of four main numbers:
Unemployment rate – The number of unemployed workers expressed as a percentage of the labor force (e.g., how many people have jobs).
Non-farm payroll employment – This numbers represents the total number of paid U.S. workers of any business, excluding the following employees: general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals, farm employees. The total nonfarm payroll accounts for approximately 80% of the workers who produce the entire gross domestic product of the United States.
Average workweek – The average number of hours per week worked in the non-farm sector. Are people are working less or more (i.e., will they have less or more money to spend)?
Average hourly earnings – The average basic hourly rate for major industries. Are average wages increasing or decreasing?
What’s the main number I should be paying attention to?
For most people, the most significant statistic in the report is whether the nonfarm payroll employment rose or fell and by how much. The economy needs to add about 180,000 new jobs just to keep up with population growth. If the number is higher than that, then employment is probably on track; if the number is lower, then the economy is probably in trouble.
Wait, why isn’t the unemployment rate the most important number?
Taken alone, the unemployment rate can be a misleading statistic. According to the Bureau of Labor Statistics, persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Persons who were not working and were waiting to be recalled to a job from which they had been temporarily laid off are also included as unemployed. (Receiving benefits from the Unemployment Insurance program has no bearing on whether a person is classified as unemployed.)
By this definition, the unemployment rate does not count marginally attached workers, persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. The unemployment rate can drop if people are discouraged from looking for a job and have not looked for employment in the last month.
According to the latest report, there are 2.6 million persons who are marginally attached to the labor force. Out of that number, 837,000 are classified as discouraged workers.
Okay, walk me through an example.
The main paragraph of the January 2014 jobs report states:
Total nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment grew in construction, manufacturing, wholesale trade, and mining.
The 113,000 represents the number of new jobs added last month. Since, that figure falls well below the number needed for population growth (180,000 – 113,000 = 67,000), we can deduce that about 67,000 people were added to the labor market who want a job but are unable to find one.
Consumer spending accounts for between 60-70 percent of all final goods and services produced within our country in a year (i.e., Gross Domestic Product (GDP)). Most Americans need an income (and a job) in order to spend money, so the fewer people that have money to spend the slower the economy will grow. The result is that the average material well-being of Americans will remain stagnant.
The bottom line: the current jobs report shows that the economy is still a long way away from being on the right track.
Other posts in this series:
Economic Thinking for the Theologically Minded provides an introduction to what has been called "the economic way of thinking." This involves explaining some of the critical concepts and foundational assumptions employed in economics.