5 THINGS YOU SHOULD KNOW ABOUT THE “JOBS REPORT”

5 THINGS YOU SHOULD KNOW ABOUT

THE “JOBS REPORT”

Payden Economics Team

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August 2020

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The Payden Economics Team

Jeffrey C. ClevelandDirector – Chief Economist

2006 – Joined Payden & Rygel

Megan R. WitmanAssociate Economist


Siddharth Saravat Vice President – Economist


The Payden Economics Team: A Meme

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What the Trading Floor Thinks We Do…

What My Mom Thinks We Do…

What I Think We Do…

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This Is What Greets You On Jobs Day, The First Friday Of Every Month

1) There Are Two Surveys in the Employment Situation (“Jobs”) Report

2) Overall Levels Versus Monthly Change

a. Revisions Matter

3) Net Versus Gross

4) The Many Unemployment Rates

a. The Labor Force Participation Rate Obsession

5) What Other Measures Of Labor Market Should You Watch?

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We Think The Jobs Report Is Misunderstood

Here Are 5 Things You Need To Know About The Jobs Report

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1. The Jobs Data Is Based On Two Surveys

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1. The “Jobs Report” Is Based On Two Surveys

Source: Bureau of Labor Statistics

Breakdown of “Jobs Report” Survey Attributes

Household Survey Establishment Survey

Official Name Current Population Survey Current Employment Statistics

Scope Civilians 16 years and older Nonfarm wage and salary workers

Sample Size 60,000 households 689,000 establishments

Method Phone Mail + Phone

Response Rate 85% 60 – 70%, increasing to 85%

Conducted on Week including the 12th of the monthPay period including the 12th of the

month

Revisions Just once a yearFor two months, and then annually as

well

Data produced

Labor Force

Unemployment Rates

Demographic Breakdown

Non-farm Payroll Headline

Wage Growth

Industry/Geographical Breakdown

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2. Monthly Change Does Not Show Trends Very Well

Sell everything!?

Buy and hold!?

-25

-20

-15

-10

-5

0

5

Jan '18 Jul '18 Jan '19 Jul '19 Jan '20 Jul '20

Mill

ions o

f Jo

bs

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2. Do You Focus On Levels? Or The Monthly Change?


Non-Farm Payrolls – Monthly Change

Jobs Lost

Jobs Gained

Jobs Lost

-25

-20

-15

-10

-5

0

5

Jan '18 Jul '18 Jan '19 Jul '19 Jan '20 Jul '20

Mill

ions o

f Jo

bs

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Non-Farm Payrolls – Monthly Change

Jobs Lost

Jobs Gained

0

100

200

300

400

500

Jan '18 Jun '18 Nov '18 Apr '19 Sep '19 Feb '20

Th

ou

san

ds o

f Jo

bs Jobs Lost

Let's Zoom In!

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Non-Farm Payrolls – Total Employed Workers

115

120

125

130

135

140

145

150

155

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Mill

ions o

f Jo

bs

The economy lost 22 million jobs in March and April, but it has gained back 9 million since then.

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2a. Revisions Matter

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2a. Revisions Matter

The Jobs Number Is Revised Significantly In The Months Following The First Release


Non-Farm Payroll, Net Monthly Change With Revisions

Month Initial Print 1st Revision 2nd Revision

Feb 2019 20,000 33,000 56,000

April 2019 263,000 224,000 216,000

In “normal” times, revisions can drastically change the initial print.

Month Initial Print 1st Revision 2nd Revision

March 2020 -701,000 -881,000 -1,373,000

April 2020 -20,537,000 -20,687,000 -20,787,000

In times of crisis, revisions are crucial for understanding the scope of the problem.

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3. Net Versus Gross: Here’s Jeffrey To His Team After Every Jobs Report…

1.8

2.0

2.2

2.4

2.6

2.8

3.0

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Mill

ions o

f Jo

bs

Gross Jobs Gained Gross Jobs Lost

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3. Net Versus Gross

The Economy Is Always Seeing Job Losses and Gains

Source: Bureau of Labor Statistics, Payden Calculations

Monthly Average of Gross Private Jobs Gained and Lost Each Month

That Is Millions. Not A Typo.

-900

-450

0

450

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Th

ou

san

ds

Net Average Monthly Change

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3. Net Versus Gross: An Elephant Seesaw

Net Jobs = Gross Gains – Gross Losses

The difference in the weight of two elephants might be 10 pounds, but that

doesn’t mean both elephants aren’t heavy!

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A Quick Review:

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4. The Many Unemployment Rates: This Is The Official One

The Official Unemployment Rate (U-3)

0%

2%

4%

6%

8%

10%

12%

14%

16%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Ra

te

U-3

Recessions


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4. The Many Unemployment Rates

The Unemployment Rate Is Often Misunderstood. Here Is How The Sausage Is Made


Here Is The Entire U.S. Population Represented In 200 Squares

Not in the Labor

ForceIn the labor force

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Here Is How The U-3 “Official” Unemployment Rate Is Calculated

*individual made an effort to find employment in the last four weeks

U-3 =𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅∗

𝑳𝒂𝒃𝒐𝒓 𝑭𝒐𝒓𝒄𝒆= 𝟏𝟎. 𝟐%


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Here Is How U-6 “Broad” Unemployment Rate Is Calculated

=𝑼𝒏𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅 + 𝑰𝒏𝒗𝒐𝒍𝒖𝒏𝒕𝒂𝒓𝒚 𝑷𝒂𝒓𝒕 𝑻𝒊𝒎𝒆𝑾𝒐𝒓𝒌𝒆𝒓𝒔 +𝑴𝒂𝒓𝒈𝒊𝒏𝒂𝒍𝒍𝒚 𝑨𝒕𝒕𝒂𝒄𝒉𝒆𝒅

𝑳𝒂𝒃𝒐𝒓 𝑭𝒐𝒓𝒄𝒆 +𝑴𝒂𝒓𝒈𝒊𝒏𝒂𝒍𝒍𝒚 𝑨𝒕𝒕𝒂𝒄𝒉𝒆𝒅U-6

Searched for work in the last year, but not recently

Would have preferred full time work, but their hours were cut, or they could not find full time work

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Many Options, You Decide (We Prefer U-6)

0%

5%

10%

15%

20%

25%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Ra

te

U-3 U-6

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The U-6 Does A Better Job Of Portraying Labor Market Weakness

The Official Unemployment Rate (U-3) Versus the Broad (U-6) Unemployment Rate

Recessions


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4a. The Labor Force Participation Rate (LFPR) Obsession

Look At The Employment To Population Ratio For The Prime Age Worker Instead

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4a. The Labor Force Participation Rate Obsession

Look At The Employment To Population Ratio For The Prime Age Worker Instead


Labor Force Participation Versus Employment to Population Ratio

Watch this number

60%

61%

62%

63%

64%

65%

66%

67%

68%

68

70

72

74

76

78

80

82

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

% in

La

bor F

orc

e% E

mp

loye

d

Employment-to-Population Ratio: 25-54 Years of Age (left) Participation Rate (Right)

Recessions

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5. Any Other Report You Should Watch?

You Should Pay Attention To Unemployment Insurance Claims (Layoffs)

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Continuing Claims For Unemployment Insurance Provide a Timely Indicator for

Overall Levels Of Unemployment

Continuing Claims Versus The Unemployment Rate

3%

5%

7%

9%

11%

13%

15%

0

5

10

15

20

25

Jan '18 Apr '18 Jul '18 Oct '18 Jan '19 Apr '19 Jul '19 Oct '19 Jan '20 Apr '20 Jul '20

Un

em

plo

ym

ent R

ateM

illio

ns o

f W

ork

ers

Continuing Claims (Left) Unemployment Rate (Right)

Source: Bureau of Labor Statistics, Dept. of Labor

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How Does Florida Compare?

0%

2%

4%

6%

8%

10%

12%

14%

16%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Ra

te

U.S. Florida

Unemployment Rate In Florida Versus The U.S.


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Key Takeaways In One Page

1) There are two surveys in the Employment Situation (“Jobs”) Report.

2) It’s important to look at both the overall level of jobs and the monthly

change.

a. Revisions can have a significant impact.

3) The headline number is net not gross.

4) There are many unemployment rates.

a. U-3 is the “official” rate, while U-6 is a broader measure of

unemployment.

b. The labor force participation rate doesn’t tell the whole story.

5) You should also watch initial and continuing claims for unemployment

insurance.

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5 THINGS YOU SHOULD KNOW ABOUT THE “JOBS REPORT”