Total nonfarm payroll employment is produced each month by the Current Employment Statistics (CES) program and the unemployment rate is produced by the Local Area Unemployment Statistics (LAUS) program. These programs are part of the Federal-State cooperative agreements between State agencies and the U.S. Department of Labor's Bureau of Labor Statistics (BLS).
The jobs numbers are from the CES survey, which is also known as the establishment survey. This is a survey of nonagricultural employers (including government) designed to gather data on the employment, hours, and earnings of workers on nonfarm payrolls. Workers are counted as employed if they worked or received pay during the pay period that includes the 12th day of the month. Pay periods vary by firm; some firms pay weekly, some biweekly, some semimonthly and some monthly. The CES survey is a count of jobs; workers with multiple jobs are counted in each establishment that reports them. In Oregon, the CES sample size is roughly 8,300 establishments.
The unemployment rate is a product of the LAUS program and is primarily based on the Current Population Survey (CPS). The CPS is also known as the household survey. The CPS gathers information on the labor force activity during the week that contains the 12th day of the month of people who are in the civilian noninstitutional population (individuals aged 16 years and older who are neither in an institution nor on active duty in the armed forces). Individuals are classified as employed, unemployed, or not in the labor force based on their activities during the reference week. In Oregon, the CPS sample size is roughly 1,000 assigned households.
The primary purpose of the CES survey is to estimate a count of jobs on the payrolls at business establishments each month; in contrast, the primary purpose of the LAUS program is to estimate an unemployment rate each month. Each survey is designed around these different purposes.
Another factor contributing to differing results is that LAUS counts people at their place of residence while CES counts jobs by location of firm. These differences have implications for how cross-state commuters are included in these data sets. In Oregon, this is important since a large population center in the Portland-Vancouver-Hillsboro Metropolitan Statistical Area spans across the border into Washington. As the CPS is a household survey that captures statistics based on place of residence and the CES is an establishment survey that tallies job counts based on place of work, people who commute to jobs in or out of Oregon will be counted differently in the two surveys. An individual may be counted in one state for the purposes of LAUS/CPS and another state for the purposes of CES. For example, a person living in Vancouver and working in Portland is included in Oregon CES data but excluded from Oregon LAUS/CPS data.
In addition to those mentioned above, other differences include:
- The CPS survey has an age minimum (age 16 and over) while the CES survey does not.
- Employment and unemployment levels in CPS/LAUS are based on population controls from the Census Bureau. Employment levels in CES are based on benchmark levels set by job counts from the QCEW (Quarterly Census of Employment and Wages) program.
- The CPS and CES surveys use different data collection methods.
- Different sample sizes. Oregon's CPS sample consists of about 1,000 households. The CES sample consists of roughly 8,300 business establishments.
- LAUS and CES data have different seasonal patterns and use different seasonal adjustment methods.
For LAUS data, standard errors are available for the estimated levels and changes. Standard errors can be converted into "margin of error" type estimates, such as error ranges and significance-of-change tests. Currently for Oregon, the 90 percent confidence interval around Oregon's seasonally adjusted unemployment rate is plus-or-minus 0.8 percentage point. For changes in data between months, a one-month change in Oregon's seasonally adjusted unemployment rate would have to be at least 0.3 percentage point to be significant at the 10 percent level and an over-the-year change would have to be 1.1 percentage points or greater to be statistically significant.
For Oregon's CES total nonfarm payroll employment in, for example, May 2012, the seasonally adjusted over-the-month change would need to be greater than 5,200 jobs to be considered statistically significant at the 10 percent level. For example, the May preliminary estimate was for a gain of 6,900 jobs. This was a significant change since it was greater than 5,200. However, during a slow economic expansion, most months see employment growing or shrinking by less than 5,200. Therefore, most monthly changes in total nonfarm payroll employment aren't statistically significant.
BLS could tighten up the margin of statistical significance by increasing the survey sample size. For example, if they were to survey double the number of businesses each month, then a change of say, 3,800, would be statistically significant.
Keep in mind that the error range we're dealing with here relates only to sampling error. There are other error components to the CES survey. One such component is error associated with what is known as the "birth-death model." This is a model that imputes employment changes due to new businesses forming, and firms going out of business. In routine economic times, this error component is relatively small. However, after-the-fact analysis by BLS showed that during the severe economic downtrend of late 2008 and early 2009, the error associated with the birth-death factors caused an overstatement of employment of roughly 8,000 jobs over the course of six months.
What these "margin of error" type estimates communicate about the accuracy of the LAUS and CES data are the size of changes between months necessary to be "economically meaningful." Monthly changes within the margin of error do not necessarily indicate that a turning point in the economy has occurred since changes of this size are not statistically significant, meaning they are fairly typical based on the historical monthly variation in the series. For this reason it could be said that these small changes indicate that the data are "essentially unchanged" from the prior month. More information can be gathered from examination of seasonally adjusted data over longer periods of time.
In general, CES employment is fairly coincident with the business cycle (Graph 1). In other words, gross domestic product is running in tandem with CES employment. Since we have access to CES estimates about a month after the fact, and since other broad measures of economic activity at the state level, such as GDP (Gross Domestic Product, the value of all goods and services produced in a given geographic area) lag by many more months, it is useful to keep tabs on CES employment trends to get a good read on the recent health of the economy for state and local areas.
One thing to keep in mind with the CES data is that the numbers are not perfect. CES numbers are subject to revisions. Often, these revisions are quite substantial. We know for example, that in March 2012, Oregon's 2011 annual average nonfarm employment was revised downward by 5,500 jobs or 0.3 percent. This percent revision was fairly typical in magnitude.
Like CES data, LAUS data respond to the business cycle. Oregon's seasonally adjusted unemployment rate increases during recessions, and either declines or hovers in a range of 5.0 to 6.0 percent during expansions (Graph 2). The gray areas in Graphs 1 and 2 indicate a national recession as declared by the National Bureau of Economic Research (NBER).
More information about differences between household (CPS) and establishment (CES) statistics for the U.S. can be found on the Bureau of Labor Statistics website.
A summary analysis of recent trends in the two surveys can be found at www.bls.gov/web/empsit/ces_cps_trends.pdf.
A detailed analysis of differences between the two surveys during the 1990s is at www.bls.gov/bls/fesacp2101703.pdf.