Kevin L. Kliesen

English

Research Papers in Economics

November 2006 NationalEconomicTrends
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
E
conomic analysts and policymakers pay a great deal
of attention to employment data. The Bureau of Labor
Statistics’ monthly employment report is often taken
as a key early indicator of aggregate economic activity. Moreover,
the National Bureau of Economic Research’s business cycle
dating committee uses employment to help determine business
cycle peaks and troughs. Thus, changes in employment can
reflect the economy’s evolving strength or weakness over the
near-term. (Over longer periods, the change in employment
depends more on trend growth of labor productivity and labor
force participation rates.)
When using employment to predict near-term economic
growth, analysts must choose which employment survey to
use. The Bureau of Labor Statistics presents two measures of
employment: one from the Current Population Survey (CPS),
with about 60,000 households; the other from the Current
Employment Statistics (CES), with about 400,000 establish-
ments, which cover about a third of all nonfarm payroll workers.
Although the household and establishment measures of employ-
ment differ considerably, they tend to show similar growth trends
over longer periods of time.1
The two series had been moving in two distinct patterns:
From January 1994 to March 2001, the establishment survey
averaged about 233,000 additional jobs per month, while the
household survey averaged only about 184,000 per month. But,
since the recession trough in November 2001, the opposite has
occurred—household employment has increased more, by an
average of about 148,000 per month, while payroll employment
has increased by only 82,000 per month. 
So, should analysts continue to rely more on the payroll
survey or put more weight on the household survey? The table
shows simple correlations between the growth of two measures
of economic activity—industrial production and real GDP—
and three measures of labor input: the CES, the CPS, and the
average of the two surveys over three separate periods. The 1994
breakpoint is chosen because the CPS was changed in several
important ways; the 2001 break point was chosen because it is
the peak of the 1991-2001 expansion.
The table shows that the correlation between employment
growth and industrial production is generally stronger than
between employment and real GDP. Second, from 1950 to 1993,
the correlation between the growth of payroll employment and
real output was larger than the correlation between the growth
of household employment and output; this is consistent with
the conventional wisdom noted earlier. Third, the correlation
between output growth and either measure of employment growth
was much weaker during the 1990s, possibly due to the increase
in the trend growth of labor productivity and the sharp rise in
stock prices.
For the most recent period, the CPS is more highly correlated
with industrial production growth (0.77) than is the CES (0.67).
An interesting finding is that, since 2001, the correlation between
the growth of the combined CES and CPS measure and real GDP
is larger than the correlation between the establishment or house-
hold measures alone, which is consistent with recent results.2
Thus, economic analysts may want to use the average of the
payroll and household surveys to measure underlying employ-
ment trends and, hence, the trend in near-term real GDP growth. 
The change in these correlations might have been caused
by the relative growth of self-employment, which is counted in
the CPS but not in the CES. From January 1994 to November
2001, self employment fell 1.6 percent. However, since November
2001, self-employment has increased by 9.3 percent to about 9.5
million; meanwhile, total household employment has increased
only 6.3 percent. If this trend continues, economic analysts may
want to pay closer attention to the household survey.
—Kevin L. Kliesen
1 Bowler, Mary and Morisi, Teresa L. “Understanding the Employment
Measures from the CPS and CES Survey.” Monthly Labor Review, February
2006, pp. 23-38; www.bls.gov/opub/mlr.
2 Perry, George L. “Gauging Employment: Is the Professional Wisdom
Wrong.” Brookings Papers on Economic Activity, 2005, 2, pp. 285-311.
research.stlouisfed.org
Are Two Employment Surveys Better than One?
Correlation Between Various Measures of
Employment and Output Growth
CES CPS CES + CPS
1950:Q1 to 1993:Q4
Industrial production 0.82 0.73 0.80
Real GDP 0.80 0.69 0.77
1994:Q1 to 2000:Q4
Industrial production 0.65 0.44 0.62
Real GDP 0.34 0.41 0.45
2001:Q1 to 2006:Q2
Industrial production 0.67 0.77 0.74
Real GDP 0.67 0.67 0.72
NOTE: Growth rates are four-quarter percent changes.

Are two employment surveys better than one?

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Are two employment surveys better than one?

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Research Papers in Economics