- Payroll Jobs
Definition: The government's employment
report is the most significant monthly economic indicator reported. While
the GDP report may be more important, it is published only quarterly rather
than monthly as the employment report.. Its importance derives from the
fact that it provides a signal early each month about the employment conditions
in he previous month and it sets the tone for the entire month. It has
been referred to as "the king of kings," as it provides information on
employment, the average workweek, hourly earnings, and the unemployment
rate. The most watched employment figure is the one relative to the seasonally
adjusted total nofarm employment as farming is subject to high seasonal
Related Indicators: average
workweek, average hourly earnings,
and the unemployment rate.
Source: Department of Labor
Availability: About one week following
the reported month.
Timing: Coindicent indicator
Likely Impact of Financial Markets:
Interest Rates: Larger-than-expected
monthly increase or increasing trend is considered inflationary causing
interest rates to rise. The bond market views a weak report favorably and
vice-versa. The report also make it more likely that the Fed will increase
the Fed Funds rate that is also bearish for the bond market.
Ambiguous. On one side higher than expected growth leads to
higher profits and that's good for the stock market. On te other, it may
increase expected inflation and lead to higher interest rates that are
bad for the stock market. The first effect dominates in recessions and
early stages of economic recovery while the second dominates when the economy
is close to full capacity.
Ability to Affect Markets: Strong as
it is both an important indicator and one of the earliest signals of economic
acitivity in the previous month. Greenspan reads carefully the employment
report in considering changes in monetary policy. Lately, in addition
to the usual indicators, employment, average workweek, average
hourly earnings, unemployment
rate, other components of the report have been subject to analysis
and scrutiny such as the "voluntary quit rate".
Exchange Rates: Larger than expected
employment growth will tend to appreciate the exchange rate as it is expected
to lead to higher interest rates.
Traditionally, the U.S. economy's average growth
rate of employment has been around 1-1.3%. As labor productivity growth
has been also around 1-1.2% per year (while the average workweek constant),
this is is why many economists believe that 2-2.5% represents the sustainable
(or 'natural') long-run growth rate of potential output. Employment growth
an economic growth above this 'natural' growth rate cannot be sustained
for too long if productivity is constant: tightness in the labor market
will cause wage inflation, lead to price inflation and lead the Federal
Reserve to increase the Fed Funds rate to tighten monetary policy in order
to slow growth and prevent a pickup in inflation. However, employment growth
in the U.S. economy in 1996-1997 has been on average higher than 1% with
both employment and average workweek growing closer to 2% while wage and
price inflation have not picked up. Also, GDP growth has been above
3% leading some to question the concept of a fixed 'natural' rate of growth.
Trend increases in productivity growth or employment growth would lead
to an increase in the sustainable rate of growth of GDP. A trend increase
in employment growh may derive from higher labor force participation rate
of some economic groups (women, ex-welfare recipients and the elederly).
See the pages on productivity controversies
and NAIRU for more on this debate.
Analysis of the Indicator:
The data covers the following major categories: Goods-Producing Manufacturing;
Construction; Mining; Service-Producing ; Transportation
and Public Utilities; Wholesale Trade; Retail Trade; Finance, Insuranse,
and Real Estate; Services; Government The payroll jobs data are used to
predict other economic indicators. For example, there is a strong correlation
between construction payroll figures and housing starts, manufacturing
and industrial production activity, total payroll and personal income.
The data is also used to refine GDP estimates. While the payroll data is
extremely important, it is subject to sizeable revisions.
A Graph of the latest Employment - Payroll Jobs data from The
Economic Statistics Briefing Room of the White House.
The latest Employment - Payroll
Jobs report from BLS.
See the Dismal
Scientist Homepage for charts, tables and analysis of the latest employment