Unemployment Rate News: Other Measures of Jobs Recovery
As our previous discussion of staffing and temporary industry hiring shows, getting a well-rounded picture of news on the labor market requires looking beyond the most-publicized official labor department unemployment and employment statistics.
There are many other revealing ones to watch, from those maintained by the labor department to others from private sources. And for overall assessment of the latest news on the nation’s economic health, there are of course many other indicators not directly measuring employment, very nicely summarized by Goldman Sachs in Understanding US Economic Statistics (Fifth Edition).
Table of Contents
Here we discuss a variety of alternative labor market measures, including data current to May 2011.
Privately Collected Payroll Data
Automatic Data Processing, Inc. (ADP) provides payroll processing services for about half a million businesses of all sizes. As such, it has access to substantial data on employment levels.
ADP contracts with Macroeconomic Advisers, LLC, to create monthly estimates of nonfarm private employment using ADP’s payroll data “following a procedure similar to that used by the BLS to process its monthly survey of Current Employment Statistics into the ‘official’ estimates of establishment employment.”
ADP releases its National Employment Report two days prior to the BLS monthly employment report. It also releases a Small Business Report, based on a subset of the national data, reflecting employment in businesses with less than 50 employees.
ADP explains the utility of its separate, advance labor market news reports:
[F]inancial markets react, sometimes strongly, to “surprises” in the BLS’ estimates of establishment employment that might signal future changes in monetary policy. Hence, information that helps analysts anticipate monthly changes in employment is valuable.
ADP summarized its May 2011 overall report as showing decided weakness:
Today’s ADP National Employment Report suggests that employment growth slowed sharply in May. Employment in the nonfarm private-business sector rose [only] 38,000 from April to May on a seasonally adjusted basis.
A deceleration in employment, while disappointing, is not entirely surprising. In the first quarter, GDP grew at only a 1.8% rate and only about 2¼% over the last four quarters. This is below most economists’ estimate of the economy’s potential growth rate and normally would be associated with very weak growth of employment.Private-sector employment increased by 201,000 from February to March on a seasonally adjusted basis.
A large portion of this disappointing jobs growth was in small business: “Employment for small businesses, defined as those with fewer than 50 workers, rose 27,000 in May.”
Rate and Extent of Job Losses
Reports of job losses are common measures of labor market changes. Tracking job losses over a period of time will give an indication of the trend of unemployment — whether it is increasing or decreasing. It can also be useful in comparing periods of recession.
An Economic Policy Institute report states:
Job loss in the Great Recession was by far the most severe of any recession since WWII. In the two years from December 2007 to December 2009, the labor market shed 6.1% of all payroll employment. By comparison, in the deep recession that began in 1981, job loss, at 3.1%, was about half as severe.
This contrast is illustrated in a dramatic graph comparing job losses in the current recession to those in the previous three: 2001, 1990, and 1981.
While job loss was significantly less severe in 1981-82, the peak unemployment of that recession, at 10.8%, was worse than the recent peak of 10.1%, an example of different measures pointing different ways. So which recession was worse?
Job Loss — Initial Claims for Unemployment Benefits
Another measure of job loss widely reported in the news is initial claims for unemployment benefits. This measure keeps track of how many people are filing their first claim for unemployment benefits and is useful in determining how many people are newly unemployed.
This statistic can be used as a measure of how employment is doing overall. If more people are filing initial claims applications, unemployment is probably growing. If less people file initial claims applications, unemployment is decreasing — or at least not increasing as quickly.
However, this statistic is measured on a weekly basis, which makes it subject to short-term fluctuations that prevent it from portraying an accurate picture of unemployment.
Due to their short-term volatility, statistics on initial applications for unemployment benefits play a role in the mixed employment signals reported by the media in this recovery. For example, in the week ending April 9, 2011, first-time applications for unemployment benefits rose by 27,000, the biggest increase in two months. However, first-time applications fell 13,000 the following week.
Because this report comes out weekly, it is closely watched by stock market experts looking for the most recent news on the direction of the economy. However, caution is in order, says at least one source:
Even though the regular Thursday morning reports on initial claims for unemployment insurance are often market movers, the series is heavily misunderstood . . . and frequently abused by those hoping to hype a particular tale on the economy. . . .
Weekly variability usually has nothing to do with economic activity. Claims-level volatility is affected by weather, holidays and other seasonal factors.
In an effort to improve the series, the DOL seasonally adjusts for holidays, etc. Unfortunately, though, the DOL never has demonstrated an ability to seasonally adjust weekly data. As a result, weekly reports that encompass a legal holiday, such as July 4th, Labor Day, Christmas, New Year’s Day, etc., often show unexpected and market-moving swings that have nothing to do with underlying economic activity.
The new claims series, however, can be used as a solid coincident-to-leading indicator of economic activity, when the seasonally-adjusted, weekly numbers are smoothed over 17 weeks (three months) and compared year-to-year.
“Smoothing” over is more often seen in four-week spreads, as the government also publishes a “four week moving average” each week.
The June 16, 2011, report shows that:
In the week ending June 11, the advance figure for seasonally adjusted initial claims was 414,000, a decrease of 16,000 from the previous week’s revised figure of 430,000. The 4-week moving average was 424,750, unchanged from the previous week’s revised average of 424,750.
This graph shows consistent improvement on this measure since peaking in March 2009 at over 650,000 new claims (the two colored lines also show the greater volatility of the weekly figures):
Job Loss — Employer-Announced Mass Layoffs
Another measure related to job cuts that some news media cover is the Challenger monthly report, which is based on mass layoff data from state departments of labor. Employers are obligated to report certain planned layoffs to state and local officials–these reports are the source of this data set.
[This] job-cut report must be analyzed with caution. It doesn’t distinguish between layoffs scheduled for the short-term or the long term, or whether job cuts are handled through attrition or actual layoffs. Also, the job-cut report does not include jobs eliminated in small batches over a longer time period. Unlike most economic data, this series is not adjusted for seasonal variation.
It also misses smaller layoffs not required to be reported to the government by employers.
Here’s a graph comparing the Challenger report to the government new claims report:
The Challenger May 2011 report states:
The pace of downsizing remained virtually unchanged in May, as U.S. employers announced plans to cut 37,135 positions from their payrolls during the month. . . .
The May total was . . . about the same as a year ago, declining just 4.3 percent from the 38,810 job cuts announced in May 2010. May marks the third time this year and the tenth time in the last 14 months that announced job cuts totaled less than 40,000.
Employers have now announced 204,374 job cuts in 2011, 21 percent fewer than the 258,319 planned layoffs reported in the first five months of
The government and non-profit sector continues to dominate monthly job-cut announcements, with these employers reporting 14,755 in May or nearly 40 percent of all job cuts announced during the month.
Geography of Unemployment
The unemployment rate varies greatly across the states. Hence a local jobseeker may face a significantly better or worse labor market than suggested by the national unemployment rate. The BLS report for May 2011, when the national jobless rate was essentially unchanged at 9.1 percent, is illustrative:
Regional and state unemployment rates were little changed in May. Twenty-four states recorded unemployment rate decreases, 13 states and the District of Columbia registered rate increases, and 13 states had no rate change . . . .
Forty-three states and the District of Columbia posted unemployment rate decreases from a year earlier, four states reported increases, and three states had no change.
North Dakota led the way, with an amazingly low 3.2% rate, Hawaii, Iowa, Kansas, and Wyoming had near-normal rates of 6.0%, and Rhode Island (10.9%), California (11.7%), and Nevada (12.1%) brought up the rear.
These disparities might be expected to induce a lot of job seekers to consider relocation, but the bad housing market and commitment to spousal employment are a couple of countervailing factors that may be reducing labor mobility, though there is disagreement about the extent of this effect.
The more one looks at labor market data, the more one realizes that there are numerous regularly-reported measures, each of which reveals another dimension of the complex picture. Often these statistics move in a predictably consistent manner relative to each other, but at times they move differently, raising interesting interpretive challenges.
Because of this complex multi-dimensionality, it is useful to understand and pay attention to various different measures when looking at unemployment and labor market news.
In the next part of this series, we’ll look at some more labor market measures.
- Unemployment Rate News: Analyzing Jobs Report Numbers from Labor Department and Other Sources
- Unemployment Rate News: March 2011 Labor Department Jobs Report Appears to Show Progress
- Unemployment Rate News: Staffing and Temporary Employment Jobs Reports
- Unemployment Rate News: Other Measures of Jobs Recovery
- Unemployment Rate News: More on Other Measures of Jobs Recovery