The December report comes out this Friday. The consensus among forecasters is that the unemployment rate dipped 0.1 percentage point to 4.5 percent, while employers added 70,000 jobs, a modest improvement from the previous month. It will be the first “clean” report after distortions caused by the government shutdown in October.
Investors and economists will analyze every detail to determine whether the “low-hire, low-fire” environment that’s prevailed since May is shifting for better or worse. Markets will likely swing on the news.
But have you ever wondered where the jobs numbers come from, how to make sense of them, and why seemingly good news sends stocks lower? If so, here’s a primer.
The surveys say …
The unemployment rate and the number of jobs added or shed by employers are the two headlines generated by the report, which is produced by the Bureau of Labor Statistics from two large surveys it conducts each month.
BLS collects employment and earnings data from roughly 121,000 businesses and government agencies, covering about one-third of all nonfarm workers. It would be impossible to reach every employer in the country (there were nearly 6 million in 2024), so the results are estimates based on the large statistical sample and adjusted for seasonal factors such as holiday retail hiring and winter construction slowdowns.
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Note: The establishment survey tracks jobs, not people. Two part-time jobs filled at different firms by the same worker are both counted.
Separately, BLS contacts 60,000 households representing some 110,000 individuals and asks about their employment status. Do they have a job? Are they actively looking for one? How long have they been out of work?
A person is counted once even if they hold multiple jobs, and unlike the establishment survey, the self-employed and farm workers are included in the totals.
The unemployment rate is the estimated number of people without a job — but searching for one — as a percentage of the labor force, which comprises job holders and job hunters.
Mixed signals
Sometimes the surveys flash conflicting messages.
In a given month, employers might report adding 100,000 jobs while the unemployment rate rises. How can that be?
The jobless rate can increase when more people enter the labor force and start looking for employment. They join the ranks of the unemployed until they land a job.
Conversely, the unemployment rate can fall even when employers shed jobs if enough people leave the labor force.
Digging deeper
Secondary metrics such as wage growth, labor force participation — the percentage of adults in the work force — and the U-6 jobless rate reveal crucial nuances about labor market health.
Changes in average hourly earnings show whether workers have bargaining power and if wage growth risks fueling inflation. Labor force participation rate indicates whether workers are entering or exiting the job market.
The U-6 rate, which includes involuntary part-time workers and those marginally attached to the workforce, exposes hidden slack that the official unemployment rate misses.
What makes a ‘good’ or ‘bad’ jobs report?
Context is the key.
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For example, in 2021 and 2022, job gains averaged 490,000 a month as the economy staged a powerful recovery from pandemic disruptions in 2020. As the expansion matured over the next two years, monthly employment growth slowed to 190,000, but the jobless rate remained relatively tame compared with long-term levels.
Last year, hiring averaged just 55,000 a month, not enough to prevent unemployment from climbing to 4.6 percent in November. That rate was markedly above the post-COVID low of 3.4 percent, but still comfortably below the 5.8 percent average of the past 20 years.
Why do stocks fall sometimes even when the job news is good?
This question brings us back to the Fed.
The central bank’s job is to promote maximum employment and low, steady inflation. Low interest rates encourage hiring. High rates keep price gains in check.
But a very tight job market might signal an overheating economy, raising concerns that inflation could spike.
That puts pressure on the Fed to boost rates — which stock investors dislike because it makes bonds more attractive and squeezes corporate profits.
Final thought
Fed policymakers are split on whether inflation or further job market deterioration is the bigger threat to the economy.
Investors are betting employment falls enough to prompt the Fed to cut rates twice this year. A strong December jobs report could upend those expectations.
Larry Edelman can be reached at larry.edelman@globe.com.