What Is Jobs Growth?
Jobs growth is a figure measured by the Bureau of Labor Statistics (BLS) that tracks how many jobs are created in the country on a monthly basis. Jobs growth is often used as a measure of economic expansion and regarded as a litmus test for national economic health. Jobs growth figures are a core part of the BLS employment situation summary, which serves as a widely watched and reported economic indicator because of its headline figures on jobs growth and unemployment.
- Jobs growth figures are reported by the U.S. Bureau of Labor Statistics.
- Positive jobs growth of 100,000 or more is seen as the minimum necessary to keep the economy expanding.
- Jobs growth figures are released monthly and get more accurate over time through revisions.
- Jobs growth figure releases create regular trading opportunities in the market and provide industry-level fundamental data for investors.
Understanding Jobs Growth
The jobs growth figure is expressed as the gross number of jobs created in the American economy in the previous month. Jobs growth data is reported in many places because it is a popular test of the nation's economic well-being: numbers exceeding 100,000 jobs added being seen as positive. Generally speaking, a 100,000 to 150,000 is seen as a minimum figure that is needed to keep economic growth healthy; this means there are new people entering the workforce all the time. The more a jobs growth number exceeds this range, the better the perceived health of the economy. Jobs growth numbers below the 100,000 to 150,000 range are seen as potential signs of a slowdown and negative jobs growth numbers tend to cause serious concern.
A job growth figure between 100,000 and 150,000 new jobs per month is considered to be the minimum level of job growth needed to mitigate the effects of new entrants to the workforce.
That said, it is important to remember that jobs growth numbers in the employment situation summary have a wide margin of error. The jobs growth numbers for a particular month are revised over time and become more accurate once they are firmly in the past. This means the current figure for a particular month can be off by over 100,000. Put another way, a negative jobs growth number could actually be a modest gain, as could a jobs growth number that clears the minimum growth range by 100,000. Although this level of inaccuracy is far from common, it does occur regularly enough to keep a healthy skepticism about jobs growth figures.
How Jobs Growth is Measured
The Bureau of Labor Statistics compiles jobs growth data by sending out a survey and publishing the results every month. The employment situation summary containing jobs growth figures combines data from the BLS household survey tracking unemployment by demographic and the establishment survey that focuses on nonfarm employment by industry. The data from these two surveys is used to provide the headline figures on jobs growth and unemployment.
Although jobs growth is available by industry, the most commonly reported number is total nonfarm payrolls, which tracks the total number of people in the country being paid for work that is not farming. The data is available on the Bureau of Labor Statistics website and is revised over time. The first revision occurs when the following month's employment situation report is published and more accurate data is available for the previous month; a second revision is done as part of a benchmarking revision using data from the Quarterly Census of Employment and Wages (QCEW).
How Jobs Growth is Used in Investing
There are two basic ways that jobs growth data is used in investing. Owing to the fact that the jobs growth data is a monthly report that is widely distributed, it creates regular opportunities for traders. There is always trading around the consensus estimates and actual numbers when released. This is more commonly referred to as trading the nonfarm payroll, but it is the same headline jobs growth figure driving the market volatility and trading action.
The jobs growth figure also serves as an economic indicator of fundamental importance to the market. The headline figure won't be of much value to investors doing fundamental analysis due to the margins of error discussed and the fact that it is a lagging indicator, but the more accurate industry data from previous months can be plugged into analysis for investment opportunities. If an investor is looking for growth or value buys, noting which industries are adding jobs and which ones are shedding jobs can be a useful starting point.