09) Economic Indicators: Employee Situation Report

What It Is

The Employment Situation Report, or the Labor Report, is an indicator from the Bureau of Labor Statistics (BLS). It is one of most widely followed reports, garners significant press coverage. and can greatly influence markets.

Basic Information

The Employment Situation Report is composed of two separate analysis: Establishment Survey and Household Survey.

The Establishment Survey is a sampling of over 400,000 businesses across the US. It is very complete, if not the most comprehensive, of all labor reports available. This particular survey covers an estimated one-third of all non-farm workers in the US, detailing statistics that include non-farm payrolls, total hours worked, hourly rates and earnings. The sample data covers more than 500 industries and hundreds of metropolitan areas.

The Household Survey calculates data from 60,000 plus households. It also counts the total unemployed individuals in the US, and from there measures the national unemployment rate. This data is mainly collected by the US Census Bureau with BLS assistance. The report records demographic shifts as well.

Each survey comes up with figures in different ways. The establishment survey is theoretically considered more accurate and larger in scope, but does not include private households, the self-employed or the agricultural sector. The household survey includes all sectors, but has a smaller sample size. Its edge is in the beginning of new business cycles when a lot of people are starting their own business.

How the Report Is Valuable

The Employment Situation Report is multi-layered. It provides a huge amount of information. These are the numbers that are mostly watched. Non-farm payrolls figure. Because of its large sample size it is important on Wall Street since it is used as a benchmark in determining the condition of the economy through the job market. It also has historical significance in relation to predicting business cycles accurately. Experts can say that there is economic growth when there are gains of more than 150,000 jobs in the market. The payroll figures are considered coincident indicator.

Next to the non-farm payrolls most watched is the unemployment figures. This is a lagging indicator where the economic problems result in less workers and less GDP.  The unemployment rate alone comprises 47% of the lagging index created by the Conference Board and used by the Federal Reserve Board.

The average weekly hours for the manufacturing sector is a leading indicator that is always displayed in the Conference Board’s US Leading Index. Hourly employment costs is also a figure to watch out for. If wages can’t keep pace with inflation, the real purchasing power of consumers will drop.

Another good figure to watch is the number of hours worked. It is a good indication of where the economy is in the current business cycle. Companies will usually test the waters first before hiring for future growth.
Things to Watch Out For

The employee situation report is a good measure to determine the health of the economy through the job market. It does not, however, necessarily define the economy. Industries can still be profitable even during tough labor markets. Seasonal employments, during the summer for example, also disrupts results. The figures are also only indicative of employment rates. It does not specify if the workers are skilled or suited for the job, or if employees are in jobs they really desire.

Investors can use the labor statistics to get a feel of labor trends and identify strengths on several different industries they have invested in, even if the labor market is weak.

It is also important to note that the numbers can not be supportive of each other since they are derived from two differey surveys.

As a whole, the Employment Situation Report is still a very powerful indicator that can influence the market greatly. It is considered the single best way to understand the condition of the labor market at any given point in time.