The U.S. Employment Situation report aka Non-Farm Payrolls may be one of the most misunderstood, over-traded datapoint that exists.  I want to contextualize today’s jobs numbers for readers in a way that helps you to understand what it does — and doesn’t — actually mean.

Please bear with me as I over-simplify this for illustration purposes.

To begin with, you need to understand the size and scope on the Labor market, and what is actually being modeled. There are about 140 million Americans working full time in the country today. Another 15 million or so would like full time jobs, but don’t have one. They may be working part time or not at all.

What the monthly Employment Situation report measures — in near real time — is the net changes in that number. Take the total net number of new hires, subtract the job losses, and you get the marginal change in Employment.

Since our starting number is so big (140m+), and the monthly net changes are so small (200k), the overall change is a statistically small number. Typically, the net change is between one tenth (140k) and one quarter (350k). During the height of the 2008-09 crisis, the net change was approximately half a percent (700k).

The model that produces the monthly number is part measurement (Establishment surveys), part extrapolation (Birth Death adjustment). This is then revised, as more and better data comes in later. The model gets re-benchmarked, seasonality is adjusted for, and one-off weather or other events impact (and that impact then attenuates away) the overall NFP series.

Thus, any single 0.1% data point needs to be recognized for what it is. One data point in a longer series. This is why I continually have emphasized the importance of longer term employment trends rather than obsess over any given month.

While employment reacts to the broader economy — this is why it typically lags the economic cycle — it does contain forward looking components. This is why we always track Hours worked, Income, and Temp help. These three components tend to lead the economic cycle.

Hence, there is lots of good and valuable information contained in the monthly NFP release — its just not what most people think it is.


This month, consensus estimates are for 190,000 net job gains. In a normal economic cycle, this would be considered a soft number, barely greater than the 150k need to stay ahead of population growth. However, in a post credit crisis economy, where GDP remains middling and job creation is not robust, this is considered a decent number. To really move the needle on Unemployment, 300-400k per month (or better) is what is required . . .

BLS data released at 8:30am EST

Category: Data Analysis, Employment

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Contextualizing the NFP Data”

  1. Ted Kavadas says:

    RE: “This is why I continually have emphasized the importance of longer term employment trends rather than obsess over any given month.”

    Yes, I agree that the long-term perspective is (very) important. However, what we are experiencing, when viewed from a long-term perspective is, in many ways, highly disconcerting. 3 Federal Reserve charts that I think are highly informative, from a long-term perspective:

    While there have been attempts by some to rationalize the unemployment problems (calling this a “jobless recovery”,”as good as can be expected”,”what one can expect given the situation”, etc.), I believe that these unemployment problems shouldn’t and can’t be minimized or otherwise dismissed.

    Another aspect that should be considered is why unemployment is so high despite the high level of corporate profitability. What does the future hold for unemployment trends if / when corporate profitability declines?

  2. riffraff says:

    Birth/Death finally out at +117,000

  3. curbyourrisk says:

    Meanwhile, the LABOR PARTICIPATION rate continues to bounce around recors LOW levels. Countless numbers of people are rolling off the back end and are now considered UNEMPLOYABLE…not unemployed. Company’s are exploitning the current labor situation by telling employees….NOT HAPPY WITH YOUR RAISE??? You’re lucky you’re still working here.

    It is all a bunch of bullshit. Ever week I run into more people on LONG ISLAND who are now looking for work VS people who have found work. I know your Long Island and my Long Island are world’s apart Barry, but that is what is REALLY going on out there. Every weekend I head out to one of my kids soccer games and find out, who is now out of work…..who is losing their house… I am sick and tired of that. These are good people….

    I want to see a panel for debate witht he likes of Ben Bernanke, Tim Geithner, Barak Husein Obama, Karl Deninger, Reggie Middleton, Mish Sherlock and yourself. I want the panel to answer real questions, not beachballs being lobbed by the BLIND mianstream media. AND I WANT THE TRUTH TO COME OUT. I am sick and tired of the media being spoon fed pre-determined figures (lets make the adjustments next week when no one is looking). I want some actual responsiblity in reporting this information. I keep statistics here at work and we base our risk management profiles on them. NOTHING JIVES ANYMORE. NOTHING MAKES SENSE.

  4. dead hobo says:

    BR apologized:

    Please bear with me as I over-simplify this for illustration purposes.

    Please bear with me as I REALLY over-simplify this for illustration purposes.

    More sauce for the goose

  5. DebbieSmith says:

    While the American unemployment situation appears to be gradually improving, research shows that over the past decade, the unemployment and labour underutlilization situation among young Americans between the ages of 16 and 29 has grown steadily worse, a revelation that is not clearly reflected in the monthly U-3 data release. As shown here, labour underutilization among non-White Americans is particularly grim, reaching as high as 43 percent:

    These high levels of both unemployment and underemployment will make it difficult for young adults to start families, purchase homes and contribute meaningfully to American society.

  6. MacroEconomist says:

    BR it ain’t’ gonna happen and I’ll tell you why. First of all, the job market is PRETTY decent if you have any sort of educational credentials. Skilled labor is in demand and as an employer I can tell you it’s hard to find good talent who won’t break your payroll.

    The 300-400k will only be achieved if the unskilled labor can get jobs. Historically these have been in retail, construction, etc. I can tell you factually that these jobs have gone underground.

    People without skills are doing things to survive but on a cash basis. And yes, they are making less than before, but is it really realistic for a high school grad construction worker to make $100k a year?

    I think not.

  7. MacroEconomist says:


    How on Earth can you put Barry Ritholtz in a category with clowns like: “Karl Deninger, Reggie Middleton, Mish Sherlock.”

    Does it not at all disturb you that the credit and equity markets have had one of the greatest rallies of all time while they have been poo-poo’ing it all the way?

    I don’t get why people traffic investment blogs to argue why the market is wrong. It’s about making money dudes, get with the f*cking picture.

  8. MacroEconomist says:

    I’d rather listen to Barack “Hussein” Obama then all the Armchair bloggers. I’m sick and tired of people trashing a guy who came into office in January 2009.

    Best President we’ve ever had and better than the previous psycho who accelerated the mess we’re in.

  9. rktbrkr says:

    We’d still be at about 9.4% if not for a major adjustment a few mos ago which did as much for the reported unemployment % as all the stimuli (which are now playing out).

    People giving up and rolling off the back end of benefits might be good for stats but not good for the economy.

    Maybe the focus should be on changes in foodstamp recipients.

  10. ES says:

    It is hard to imagine 9% ( or 15% if you use U6 number) of population unemployed. I just dont see the angst that normally comes when every 10th person in the population has no money. And that is not even counting their dependents.
    I ahve a growing hunch that as many as half of these people are working under the table ( tax free), plus collect unemployement insuarance. Of course, illegals always worked under the table and I am not clear how they were reflected in the statistics if at all. In texas, where we have such a huge underground/ illegal labor market it is fairly easiy for unemployed people to join it while still collecting the unemployement insuarance.

  11. Francois says:

    “Skilled labor is in demand and as an employer I can tell you it’s hard to find good talent who won’t break your payroll.”

    Yeah right! Like employers looking for machinists with experience @ 13$ hr, and complaining this is so expensive.

    Not saying you’re that kind of employer, but I’ve heard that kind of double talk and BS so many times…

  12. constantnormal says:

    it is perhaps noteworthy to observe that back in February, the March 2010 estimate of the number of nonfarm employed was “nudged downward” by 378,000. What will happen to today’s numbers a year from now?

    The point being that 216,000 is clearly well within the margins of error, and can just as reasonably be treated as zero.

  13. Mike in Nola says:

    Whatever the numbers, they’re due to the weather.

  14. SivBum says:

    Besides the improving headline number of 8.8%, jobs added in Jan and Feb have been revised up:

    “The change in total nonfarm payroll employment for January was revised from +63,000
    to +68,000, and the change for February was revised from +192,000 to +194,000.”

    And the laboe participation % remained the same but higher in headcounts. It’s a very good report.

  15. Petey Wheatstraw says:

    ES Says:

    It is hard to imagine 9% ( or 15% if you use U6 number) of population unemployed. I just dont see the angst that normally comes when every 10th person in the population has no money.

    You need to go to the Publix grocery store in Leesburg, FL, and buy a bag of groceries (already packed and priced, at the register, and the 70+ year old bag boy will be happy to load it into your car), for “the people living in the woods.” They will also give you directions on how to deliver them, in person, or to a local church. No Mexicans or Hispanic folks among them. Yes, they will mow your lawn for $5.

    Just yesterday, here in Northern VA, a good number of people (I can’t remember, exactly, but I think that between 20 and forty is a safe statement), were forced from their “homes” located in the woods in a cloverleaf between I-95 and Dale City Blvd. These are not illegals, they are your fellow citizens. Formerly employed. These folks aren’t lazy, or double-dipping, or stupid, or unindustrious. They have had the rug pulled out from under them.

    There, but for the grace of god, so far, go you or I.

    If you can’t see it, it might be because you aren’t looking, or don’t want to.

  16. franklin411 says:

    It’s not the weather this time. I just saw a Republican saying it’s all due to the GOP taking the House. Apparently, employers are so enthusiastic about all those bills eliminating women’s rights, defunding NPR, and stripping Americans of their health care that they’re willing to overlook the fact that the GOP hasn’t proposed a single bill that would create even one job.

  17. BusSchDean says:

    An interesting mix of….US still going to hell in a handbasket…to things are looking up. The numbers are better but with two continuing uncertainties:

    1) Short-term: How fast? How fast will employment pick up? How much will average HH income increase? How rapidly will housing clear?

    2) Long-term: What structural changes will we see in jobs? Income distribution? Access to education?

    Pretty interesting time, not like those boring old post-WWII years, or Vietnam years, or…

  18. zell says:

    Petey: Couldn’t agree more. These people have become invisible. The herd has moved on, continuing to graze in new pastures, now oblivious to the carcasses that were taken down months ago.
    As to “focus on the market”- that’s not the big picture.

  19. Hausse says:


    Making money is fine. But maybe some of us want to also understand what’s actually going on out there. And that’s where the perspective offered by the honest and hard working bloggers you call clowns is invaluable. But hey, feel free to wear your rose colored glasses no matter what.

  20. curbyourrisk says:

    @ MACRO……

    I am looking for people not afraid to ask hard questions. If you have a problem with the truth and love living under this administration of koolaid and blue pills go right ahead.

    I don’t give a shit about what you think.

  21. ES says:

    > If you can’t see it, it might be because you aren’t looking, or don’t want to.

    Petey, I disagree. If I had nothing to eat for days, which did happen to me in the “past life”, you can rest assured, I wouldn’t be just sitting in the “woods” with nothing to eat. I would’ve been out there in the downtown looking for work and food and growing some food on any plot of land I could gain access to it. What are these people eating out there in the woods? Somebody must be supporting them through charity. I am definitely looking. And as I said I don’t see enough but may be because I am in Texas which is doing better than many other areas.

  22. tagyoureit says:

    Tent “city”, Ocean County, NJ – Median income ~ 59k/year.

  23. derekce says:

    We also have a “tent city” in our town. My wife serves breakfast every other Friday at the soup kitchen near there. I’ve worked a few times when I was off from my job. A real humbling experience. The county seems to want them there instead of under highway overpasses or street corners, so it’s out of sight and out of mind. At the same time, I’m doing well financially. It’s becoming a real bifurcated economy.

  24. cognos says:

    There is no koolaid, blue pills, or POMO.


    It will continue to build on itself and you will all join up eventually… or not… or you will cling to bad investments like cash and gold and claim its “all BS” to the bitter end.

    Companies will report ANOTHER STRONG QUARTER of record cash and mainly record revenue. Earnings on SP500 companies are about to be back at all time highs, and still have lots of room to grow.

    But yeah, its FAKE. No one has a job. Restaurants are not full. Buildings are empty (which is why landlords are lowering your rent and begging you to take places at cheap prices??). And no one, absolutely no one can afford an iPad. That is a soup line outside the Apple store every morning.

  25. MacroEconomist says:



    The wait at Nobu is now 1 hour instead of 2. Still pisses me off.

  26. curbyourrisk says:

    Cognos and Macro……..made for each other.

    Classic recovery my ass.
    Gold is a bad investment???? Hmmm…where was gold in 2006? Where was the S&P? Which was the winner there…..YOU FAIL.
    Another strong quarter…….cutting expenses, cutting payroll, cutting invnetory……that is not a STRONG QUARTER, that is getting by the skin of your teeth with less and bragging about it. Companies have lots of room to grow huh??? Have fun estimating the amount of price hikes they are going to need to pass through to end users in order to maintain that direction…guess what?? NO ONE CAN AFFORD TO PPAY those price hikes. So good luck getting any of them to stick. Welcome to the year of Margin Compression X 10. …..again….you fail.

    Restaurants are full??? That is only true around my area, becuse the number of restaurants have been cut in HALF…. So that is a FLAT growth story, butlike the MSM….you spin that how you want….I SAY….FAIL AGAIN….

    Just beacause the APPLE geeks are lining up for the first few days to buy IPADS…does not extrapolate the rest of the world…..again……I-FAIL for you.

    Now….you and Macro go get that meal at Nobu….. keep spending all that cash you are making trading…I know…You both went all in MARCH 2009…..