Headline Unemployment Rate Is a Tiny Facet of Overall Picture
Most people understand that a rising jobless rate is one of the hallmarks of a shrinking economy. But the national unemployment rate does not always reveal a complete picture of the jobs outlook. For example, when the downturn began in December 2007, the unemployment rate was a mere 4.9% — hardly the stuff of recessions.
Employment tends to be a lagging indicator because most employers will cut back on other expenses in order to avoid layoffs for as long as possible. Moreover, when conditions begin to improve, employers may avoid or delay hiring until they are confident that the recovery is sufficient to justify additional labor costs.
In order to gain a true understanding of current employment conditions, it’s necessary to look beyond the headline unemployment rate to consider other indicators that reflect the nation’s jobs situation.
Households and Establishments
The Department of Labor works with the Bureau of Labor Statistics (BLS) and the Census Bureau to survey representative samples of households and employers to come up with the Current Population Survey and the Current Employment Statistics survey. The results of these surveys are combined in the Employment Situation, a monthly report published by the BLS.
The Current Population Survey, also called the “household survey,” sends trained interviewers to 60,000 sample households to collect information about who is employed, unemployed, or not in the workforce. Although this survey is used to calculate the unemployment rate, it also tracks the size of the civilian workforce, the number of people who are employed, the number of involuntary part-time workers (people who want full-time work but can’t find it), and people who are marginally attached to the workforce (meaning they looked for work sometime during the past 12 months but not during the previous four weeks).
The Current Employment Statistics survey, also called the “establishment survey,” gathers information from the payroll records of about 160,000 businesses and government agencies. It counts persons employed in nonfarm-related businesses such as factories, offices, stores, and government offices. This survey is the main source of information about the number of jobs created or lost in a given month in a range of industries. It also tracks the average number of weekly hours worked by production and nonsupervisory workers and their average hourly wage.
Every week, the BLS assesses the number of people who file claims for unemployment insurance benefits. The data is reported weekly, although many experts follow a four-week average to smooth out weekly fluctuations. Jobless claims do not reflect the total rate of unemployment because not everyone who is unemployed applies for or is eligible for unemployment benefits. But jobless claims can give a more immediate indication of employment trends because they are reported weekly, and most people file soon after becoming unemployed.
Tracking the many employment indicators can help provide a better perspective on the broader employment picture. The clues from these reports may reveal clues about the direction of the economy and the financial markets.