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BLS Non-Farm Payroll Report: An Overview on Reading it

Release Date: 1st Friday of each Month
Release Time: 8:30am ET
(For the monthly reports)

The Bureau of Labor Statistics Nonfarm Payroll Report is in many ways the Zeus of economic reports: It is, with the possible exception of the Federal Reserve’s interest rate announcements, the most important such report, affecting the greatest number of market participants in the most powerful ways. It delivers the most important available information about the vibrancy of the workforce and the economy, with its concomitant clues about the future of inflation and interest rates. And it delivers this information earlier in the month than most other reports. Many commentators have noted that this is also the most reliable of reports: A strong labor report results in a strong stock market, for the most part, despite the omnipresent faction that sells in the face of such news because it fears higher interest rates.

The “Employment Situation,” as the report in its entirety is called, is usually released on the first Friday of the month at 8:30 AM ET. Frequently, the report is read in the media directly from the statement of the Commissioner of the Bureau of Labor Statistics, who in the Spring of 2015 is Erica Groshen.

          Ms. Groshen began her statement of April 3, 2015 thus:

            “Nonfarm payroll employment increased by 126,000 in March, and the unemployment rate was unchanged at 5.5 percent. Employment continued to trend up in professional and business services, health care, and retail trade. Job losses continued in mining.”

(It should be noted that the “job losses [that] continued in mining,” are largely attributable to the world-wide dislocations in the oil market.)

This is generally the formula for the Commissioner’s opening statement: 1) the increase or decrease in nonfarm jobs over the previous month, 2) the current unemployment rate, and 3) some salient trends in the U.S. labor market.

Next, the Commissioner reports on the revisions for the previous two months, as she always does. In the case of the April 3rd report, we learn that the headline employment numbers are revised downward for the months of January and February, 2015, by a total of 69,000. She also reports that job gains have averaged 197,000 per month over the last 3 months and 269,000 over the last 12 months.

These numbers are very useful for economists and other market participants. First, 126,000 new jobs for March is a decidedly weak number for an economy that is some six years into a recovery. To a lesser extent, the same can be said for the 5.5% unemployment rate. The three month average 197,000 new jobs is much more in line with analysts’ notions of an economy in recovery, but weaker than they might hope. And the 12 month average of 269,000 monthly new jobs is consistent with a robust recovering economy. For many, a picture emerges of an economy that is experiencing an extended period of growth since the market bottom of 2009, but that has been on the skids of late. Many wonder whether the recovery has run its course or is simply experiencing a temporary downturn.

Also, it is important to recognize that upward revisions in the two previous months are usually associated with bull markets, whereas downward revisions are associated with bear markets. The fact that January and February figures were revised downward substantially (69,000 jobs) adds important evidence to the bear case for jobs, the economy, and stocks.

Importantly, a preponderance of evidence supports the view that rising nonfarm payroll figures, even when they are accompanied by higher interest rates, are historically good for stock values. It is true that interest rates have often risen when payroll numbers have risen. It is also true that certain market players tend to sell into big payroll numbers and other intimations of higher interest rates. However, research by the Northern Trust, J.P. Morgan Asset Management, and many others has shown that even in the short term, buying pressure generally overwhelms selling pressure in the wake of burgeoning employment and higher interest rates. Jeremy Siegel, finance professor at the University of Pennsylvania’s Wharton School summed it up: “The Fed just starting to raise interest rates isn’t associated with ending market rallies. Typically, it isn’t until the Fed is nearly done raising interest rates—which can take years—before market returns are affected.” (New York Times, 12/31/2014.)

The next few paragraphs of the Commissioner’s statement concentrate on strong sectors (e.g. healthcare), middling sectors (e.g. construction), and weak sectors (e.g. mining and energy).This information is often very useful for asset managers seeking to allocate funds most profitably.

Next, the Commissioner reports on average hourly earnings, which rose by 7 cents in March to $24.86, a monthly rise of 0.3%. Over the past 12 months, average hourly earnings have risen by 2.1%. Moving on, the average workweek was 34.5 hours versus a previous reading of 34.6 hours. Economists and investors pay close attention to these numbers, among other reasons, because substantial jumps or declines in the hourly wages and the lengths of the workweeks very frequently foreshadow waves of new hiring or firing.  Also, even minor increases in wages can indicate possible wage inflation, which in turn can lead to inflation generally and higher interest rates. These March, 2015 numbers are not earth shattering, however, and seem to suggest little in the way of imminent changes in hiring trends. 

Two Separate Surveys
The data contained in the Employment Situation report is actually the product of two separate surveys, the Establishment Survey and the Household Survey. The headline nonfarm payroll number is the product of the Establishment Survey, a hugely comprehensive synopsis of over 560,000 worksites wherein businesses report the current number of employees on their payrolls. The data comprising the average workweek and average hourly earnings also come from this Establishment Survey.

The other survey, the Household Survey, provides data for the unemployment rate. This comes from a cross section of 60,000 households. This unemployment rate is the percentage of unemployed people from among those in this cross section who are currently in the labor force. Other readings from this survey include the labor supply and discouraged workers.

Other Report Data
The Household Survey reported that in March, 2015, the number of unemployed was 8.6 million, or little changed. 29.8 percent of these had been jobless for 27 weeks or longer.

There were also 2.1 million who were “marginally attached” to the labor force. These people had not looked for work in the four weeks prior to the survey, but wanted a job, were available, and had looked for a job within the last twelve months. Among this group are 738,000 “discouraged workers” who believed that there were no jobs available for them.

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