- There's been a lot of press coverage
about people quitting their jobs.
Well, today's report tells you why.
- [Josephine] Here, President Biden
is referring to the Labor Department's monthly jobs report,
a key gauge of American employment and inflation.
The report can move trillions of dollars in market trades
and influence policy decisions,
like interest rates at the Federal Reserve.
But the report still has its limits.
- There are some things
that the jobs report just doesn't include.
And because of that,
we're not getting a complete picture of the US jobs market.
- [Josephine] Here's what you need to know
to read the monthly jobs report,
including what it tells you, and what it doesn't.
The report, which is normally released
on the first Friday of the month,
gives a look at the current state of the economy.
And while economists read it in depth,
there are four key areas that they tend to focus on.
Non-farm payrolls, often simply referred to as jobs,
shows the number of positions added
or lost each month that aren't in agriculture.
This chart shows non-farm payrolls over the past decade.
You can see job numbers have been steadily rising
until the pandemic hit when they plummeted.
And although jobs had started to recover,
by late 2021 job growth had slowed.
- Weak job growth
can be a reflection of two different things:
one is that businesses are struggling to find workers,
which is largely what we saw in 2021.
- [Josephine] Sarah Chaney Cambon
reports on the American labor market
for The Wall Street Journal.
- The other is that demand
for their goods and services is weak.
And therefore, they're waiting off workers or not hiring.
- [Josephine] This fluctuating jobs number
is directly tied to the unemployment rate,
which measures how many workers
in the labor force are unemployed
and currently looking for work.
The goal is full employment, which some economists say
is around a 4% to 5% unemployment rate.
- Full employment is basically
when anyone who wants a job can get a job.
When the unemployment rate is really low,
it's generally a good thing.
It means that businesses are not laying off workers
and wages are probably growing pretty strongly
as a result of low joblessness.
- [Josephine] But if unemployment drops too low,
it can signal challenges.
- The downside of low unemployment
can be that companies are really struggling to find workers
and that can lead to them raising wages,
and therefore prices,
and you could get very big inflationary pressures.
- [Josephine] When the unemployment rate goes down,
economists look into how much of that
is due to workers getting jobs
and how much is due to shrinking labor force participation,
which is measured by the labor force participation rate
or how much of the overall population
is either currently working or looking for a job.
You can see labor force participation has steadily declined
over the past two decades with the largest drop
happening at the beginning of the pandemic.
And when the rate drops too low,
it can put pressure on employers.
- Generally when the labor force participation rate is low
as it's been throughout the pandemic,
you might see stronger wage growth
and that's because businesses just can't find the workers
to fill their jobs.
They're oftentimes facing what we call labor shortages.
And as a result, they ramp up pay.
- [Josephine] Increasing or decreasing pay
is measured by wage growth.
Look at this chart.
You'll notice that wages picked up in 2021
due to labor shortages
and economists expect that wages will continue to rise.
Metrics like wage growth
give economists a sense of how the economy is doing
but the data only shows part of the picture.
That's because the report is mainly just hard data,
which means it can tell us whether job numbers
and wages are going up or down but it doesn't explain why.
- [Josephine] It doesn't give us details
on how good a given job is.
It doesn't tell us how safe a manufacturing job is
or how well an employer is treating their employees.
- [Josephine] And there's also the timing of the report.
It's based on two core surveys from the Labor Department.
One of household populations and another of employment data
that take place around the 12th of every month.
And as a result, the jobs report
primarily reflects the labor market
over these first two weeks,
which means there's a delay in the data.
The employment survey collects data
from around 145,000 employers.
Some of whom may respond to the survey late or not at all.
- Before the pandemic hit businesses were open.
And so, they were able able to provide responses
to the Labor Department survey.
After the pandemic hit, a lot of businesses shut down
either because consumers stopped going
to X restaurant or X business,
or because of government-mandated restrictions.
- [Josephine] If businesses don't respond,
the Labor Department has to guess their payroll size,
which can get tricky.
And this is what we saw happening during the pandemic.
- The Labor Department had a smaller sample size
of businesses to work with for its payroll survey.
And as a result, the margin of error
when they were making calculations was higher.
- [Josephine] This margin of error is important
in part because of just how big the labor market is.
In December 2021, it stood at almost 150 million jobs.
If the number of jobs added or lost
are tens of thousands higher or lower
than what the report shows,
it could make policymaker's jobs harder.
- The Federal Reserve is really closely watching
those job growth and payrolls growth numbers.
And if there's the big margin of error,
they might have a slight misunderstanding what's going on.
- [Josephine] Still, the Fed looks at multiple data reports
about the economy and over time,
estimates from the jobs report
that are too high or low tend to even out,
so the implications are shorter term.
But despite the pitfalls, the jobs report
is still one of the most influential indicators we have
for the American workforce and economy.