The Jobs Report Puzzle

When the US Bureau of Labor Statistics releases its jobs report the first Friday of every month, it reports the results of two separate surveys that together show the employment picture in the United States over the previous 30 days.  The establishment survey, which polls businesses on hiring, is the headline number reported by every major news organization on Jobs Day.  The number you don’t see reported is the household survey which – you guessed it – polls households on their individual employment. 

Over the course of a full year, these two surveys converge but they can and often differ month to month.  If you were to look at recent headlines citing the establishment survey’s result of 113k jobs gained in January, you would conclude that the pace of hiring over the past couple months has been weak and the strength of the economic recovery may not be as strong as we thought.  What you would be missing, though, is that the January household survey reported a gain of 616k jobs.  The two surveys paint vastly different pictures with vastly different implications.  The question is how do you reconcile the different stories the two surveys are telling? Which one is more accurate?

The Household Survey as a Leading Indicator

This post by Matt Busigin on the CFA Institute’s blog gives us an answer.  I recommend reading at least the conclusion of the piece and if you have the time and energy the entire post (fair warning: it gets pretty technical), but the key insight is that in economic expansions, the household survey leads the establishment survey (see the graphs from the post below) and current economic data supports the idea of a self-sustaining recovery.  This implies that the +616k number would be a much better anchor to judge jobs creation by than the +113k number, despite widespread reporting of the latter number. 

Economic-ExpansionsSource: Matt Busigin, CFA Institute Inside Investing Blog

Of course, the answer to the puzzle is that jobs growth is probably somewhere in the middle of these two surveys but don’t let the past two months fool you, the establishment survey data is likely a blip on the radar.  As we advance deeper into 2014, the jobs puzzle will begin to solve itself and the solution is likely that we are on surer economic ground than we think we are.


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