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Top 5 Tips for Understanding Jobs Reports

The monthly jobs reports (also known as the Employment Situation Surveys) offer insight into what’s happening in the economy. Investors, economists, employers and consumers use the information in these reports to make important decisions. And even the Federal Reserve relies on them to determine whether to raise interest rates. If you’re having a tough time understanding what the jobs reports mean, here are some tips to keep in mind.

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1. Know Where the Data Comes From

Making sense of the monthly jobs reports might be difficult if you’re not sure how the employment numbers were collected. The Bureau of Labor Statistics (BLS) puts the Employment Situation Summary together using data from two surveys: the Current Population Survey (CPS) and the Current Employment Statistics (CES) survey.

The CPS (or the household survey) is based on information provided by roughly 60,000 different households. When the jobs reports mention the labor force participation rate or the unemployment rate they’re referring to numbers from this survey.

The CES survey, on the other hand, is part of a program that polls about 146,000 government agencies and private, nonfarm businesses. This survey (known as the establishment survey) tells us how many people work in different industries, how many hours they work per week and how much they make, on average. It also reveals the number of jobs (and businesses) that have been added and lost.

2. Know Which Data Points Matter Most

Top 5 Tips for Understanding Jobs Reports

Out of all of the details that the monthly jobs reports provide, one that tends to make the headlines is the unemployment rate. When unemployment is high, that’s an indication that the economy isn’t in a good place. Conversely, a low unemployment rate suggests that the economy is healthy and strong. If the economy seems to be growing too fast, the Federal Reserve might be tempted to raise the federal funds rate to avoid inflation.

Job gains matter as well. When there are jobs being created and added, that’s a sign that the economy is expanding.

Related Article: What Causes Inflation?

3. Know Who’s Considered Unemployed

Any individual who has been actively looking for a job within the past four weeks and is capable of taking on a job is considered unemployed. In contrast, you’re considered employed if you have a job. Even if you’re only working temporarily or you’re not working because you’re on maternity leave or you’re sick, you’re still counted as one of the employed people in the labor force.

The unemployment rate is equal to the number of people who are unemployed divided by the number of people in the civilian labor force. Minors under the age of 16 aren’t included. And even though the households in the CPS are supposed to represent the entire population, the unemployment rate fails to tell us everything we need to know about U.S. employment.

4. Understand How Jobs Reports Can Be Misleading

Top 5 Tips for Understanding Jobs Reports

The monthly jobs reports can paint an inaccurate picture of how the economy’s doing. Monthly changes in employment numbers can seem more dramatic than they actually are due to sampling errors. What’s more, the BLS typically releases the Employment Situation Summary before all of the employment data is available from the CES survey. As a result, jobs reports usually provide some estimated numbers that aren’t revised until later on.

While there are millions of jobs in the U.S., the jobs reports only highlight what’s happening to a fraction of them. The CES program surveys a fairly large group of employers but it doesn’t account for unpaid family workers, people who work in the agricultural industry or self-employed individuals whose businesses don’t operate as corporations. The CPS takes these workers into consideration but surveys fewer people.

Even the official unemployment rate is somewhat misleading. Critics say that this number (or the U-3 measure) is inaccurate because it doesn’t account for the following workers:

  • Marginally attached workers who couldn’t find work after job hunting at some point in the past 12 months
  • Discouraged workers who have completely given up on looking for jobs (a type of marginally attached worker)
  • Underemployed workers who have part-time jobs but can’t find the full-time jobs they want or deserve

The BLS includes six different measures of unemployment in its monthly jobs report. But news reports tend to focus only on the U-3 measure. Some people say that the U-6 measure is the real unemployment rate because it accounts for all of the marginally attached workers (including discouraged workers) and the people who are underemployed.

Related Article: The Top 10 Jobs for Salary and Growth in 2016

5. Know What Jobs Reports Won’t Tell You

The jobs reports can’t tell you what the future holds for the U.S. economy. In fact, they can merely show you what’s currently going on in the labor market.

And in some ways, the jobs reports lack context. They won’t reveal how job growth relates to population growth or whether the jobs that workers have are quality jobs that allow them to adequately provide for their families.

The Takeaway

The monthly jobs reports aren’t perfect. But journalists, financial analysts and political leaders use them to understand where the economy stands.

As a consumer, it’s important to understand how the jobs reports can be useful and how they fall short in bringing serious economic issues to light. In order to spot trends, it’s best to look at the data over the course of several months instead of concentrating on the way the employment numbers shift from one month to the next.

Photo credit: ©iStock.com/Jacob Ammentorp Lund, ©iStock.com/CREATISTA, ©iStock.com/sasar

Amanda Dixon Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.
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