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How to understand the myriad jobless reports

One week, a federal report says the number of people filing new claims for unemployment insurance has unexpectedly dropped, pointing to a slowdown in layoffs. Good news, right? Maybe not.
/ Source: The Associated Press

One week, a federal report says the number of people filing new claims for unemployment insurance has unexpectedly dropped, pointing to a slowdown in layoffs. Good news, right? Maybe not.

Within weeks, another government report says the unemployment rate has climbed. Bad news? Not so fast: Soon a privately issued report says the labor market appears to be strengthening, news that reassures investors and sends stocks higher.

Confused yet? Don't worry — so are some of the nation's leading economists.

Gauging the labor market, and predicting where it might go, has proven to be an exceedingly difficult task during this fast-moving recession. The unemployment rate has spiked much faster than most analysts thought it would over the last year, and along the way numerous reports has given seemingly contradictory messages about the number of Americans out of work.

So which reports should be trusted, and which ones tell the whole story? Is the report on jobless claims released Thursday — which said that new claims dropped slightly to 631,000 — simply going to be contradicted by the next set of numbers? How do agencies even know how many jobs have been slashed?

Here are questions and answers about the main jobs reports that experts consult to read the labor market.

Q: What are the most important reports that experts watch?

A: Two major government reports get the most attention: the weekly jobless claims report filed by the Department of Labor, and the monthly unemployment report from the Bureau of Labor Statistics. These are complemented by a slew of private reports issued by economic consultants like Moody's, or Automatic Data Processing, Inc.

Q: What does the report on weekly jobless claims measure?

A: The report captures the number of people who file their first claim for unemployment insurance after being laid off.

This can be a good measure for how many jobs were cut the week before, but it doesn't capture the whole picture. For whatever reason, not everyone who loses their job ends up filing for unemployment insurance benefits, or at least they may not file right away. Still, the rough number can point to upward or downward trends in the labor market between monthly reports filed by the Bureau of Labor Statistics.

Q: What does the monthly unemployment report measure?

A: The monthly unemployment report is based on a Census Bureau survey of 60,000 U.S. households. The survey asks respondents several questions, including whether they have a job, are looking for a job, or are so discouraged that they have quit looking for work altogether.

The report lays out a whole range of unemployment rates. The most-cited rate only counts people actively looking for work; the latest unemployment report, released on May 8, calculated that rate as 8.9 percent. A much broader unemployment rate — 15.8 percent in the latest report — also includes everyone who has dropped out of the labor force or has been forced into part-time work.

Q: Why do these reports seem to contradict each other sometimes?

A: The main reason is that the jobless claims report only catches one piece of the puzzle — the number of jobs being shed. But sometimes, the unemployment rate can climb even if fewer jobs are cut. That's because the unemployment rate also accounts for the all-important factor of job creation.

Even if employers don't shed any jobs, the unemployment rate can climb if they don't create enough new jobs to absorb all the graduates and immigrants who enter the work force each month.

Q: Why don't I hear more about private-sector jobs reports?

A: Investors pay close attention to these reports, like the ADP National Employment Report, which tend to be released before the government reports and can give stock traders a leg up when betting on economic trends. But academics shy away from them in part because companies don't fully reveal their study methodology. (ADP's report, for one, is based on payroll data from about 400,000 of the company's data service clients.)

Government reports, on the other hand, have been used for decades and their methodology is well known.

Q: So which reports should I pay attention to?

A: You can't go wrong by watching the monthly unemployment report from the Bureau of Labor Statistics, said Arindrajit Dube, an economist with the Center for Labor Research and Education at the University of California at Berkeley.

The unemployment report is the best gauge of the labor market because it measures people's intentions — such as whether they've given up on the job hunt or decided to return to school — in a way payroll figures or jobless claims cannot.

The one downside of the report is that it only comes out monthly, and gives a good picture of where the labor market was last month rather than where it is this week, Dube said. So he watches the weekly jobless claims report to get a contemporary reading on the job market, rather than waiting a full month for the unemployment report. He will also look at reports like ADP's, but mostly as a complement to government issued data.

"I think the short answer is: I look at all of them because they each give a piece of information," Dube said.