Cross-Checking Employment Reports

Visual illusions that play on positive and negative space can be quite engrossing: Our view can shift from seeing a vase to two faces, or from a young lady to old woman. The picture doesn’t change, but our perception does.

Last week’s Bureau of Labor Statistics (BLS) employment report also offered both positive and negative views. Optimists were encouraged by the strong increase in payrolls. But those sensitive to cracks in the labor market noticed a rising unemployment rate and a falling participation rate. These contrasting narratives show us the importance of not relying on a single source for impressions of the labor market.

The divergence in the employment report came from its use of two surveys. The establishment survey of employers showed another month of elevated job creation. However, the unemployment rate relies on a survey of households. This survey showed a decline in self-reported employment, pushing up the unemployment rate.

In past cycles, the household survey has been a leading indicator of a turn in the labor market; when it falls while the establishment survey gains, trouble is brewing. But in this cycle, the divergence has appeared sporadically for two years. Low response rates are adding to variability in the published results, which were already noisy. The household survey calls upon 60,000 households, only half the size of the establishment survey sample—and the scale of the household survey may soon be reduced due to budget constraints.