Fisher Investments Editorial Staff
US Economy, Investor Sentiment, Media Hype/Myths

A Tale of Two Surveys

By, 02/08/2010

  Story Highlights:

  • Friday's employment report showed improved unemployment…and falling payrolls.
  • The Household survey, showing improvement, is likely more accurate than the Establishment survey, showing weakness.
  • Both reports had bright spots, demonstrating overall employment progress.
  • Employment improvement may be slow, but stocks are forward-looking and should rise regardless.


It was the best of times, it was the worst of times. Unemployment fell, total jobs fell—so went Friday's employment report. Good news? Bad news?

The market's reaction—plummeting before eking out a small gain, but still suffering a fourth consecutive down week, suggests bad. The media also reacted negatively, most assuming January's payroll decline and December's revision (the initially reported drop of 85,000 swelled to 150,000) suggest employment and the economy are weaker than hoped, largely ignoring the unemployment rate improvement (and Q4's big 5.7% GDP growth to boot). November's improved job gains—revised from 4,000 to 64,000—were also barely mentioned.

Confused on how unemployment and jobs can fall? Friday's report is a tale of two surveys: Household and Establishment. The Household survey, based on 60,000 interviews with individuals, reported 541,000 new jobs and 111,000 new or returning workers—a decrease in unemployment from 10% to 9.7%. The Establishment survey, based on responses from about 400,000 businesses, reported 20,000 less jobs. The Household survey probably better captures reality at this stage of the business cycle; the Establishment survey usually lags during nascent recoveries, as newly formed businesses—where much job growth occurs—aren't surveyed.

Still, with global stocks sliding, it's easy to accentuate the negative. We've talked about the pessimism of disbelief, and Friday's headlines are prime examples.

"US Employers Slash 20,000 Jobs; Jobless Rate Falls to 9.7%" 

"The Big Jobs Hole"

"No US Job Growth, but Unemployment Falls"

"US Recovery Risks Being Hobbled by Growing Army of Long-Term Unemployed"

The angles are dour, the bad news emphasized; if the unemployment rate improvement is mentioned, it's secondary. But as the Beatles said, don't make it bad; take a sad song and make it better: Friday's report is good news, showing progress overall.

Consider the Household report: January saw unemployment fall even as the workforce got bigger. This is a sharp contrast to November, when improvement in unemployment was pinned on unemployed workers giving up and leaving the workforce. More workers finding more jobs is a great development. As is the widely feared "underemployment rate," which fell from 17.3% to 16.5%—a nice comeback to anyone suggesting any improvement is down to workers settling for part-time jobs.

Even the Establishment report had some sunshine. While areas like construction, private couriers, and state and local government agencies weakened, the areas of strength were far more abundant. Federal government outfits, retail, motor vehicles, healthcare, and private temporary workers all reported gains in January. Exceptional growth in the latter particularly suggests early-stage economic expansion.

Employment reports always have pockets of strength and weakness, and overall improvement will likely be slow, as we've said for a while. This is typical of young recoveries. More importantly, unemployment is backward looking—there's no need to fret the sadder parts of Friday's report, as they say nothing about what's ahead. Bad as they seem, they present no fundamental reasons for stocks' pullback to worsen materially. Sure, stocks will probably stay volatile, and we may yet hit correction territory. But longer-term fundamentals remain sound, and the bull market should keep climbing this wall of worry long after this news fades.



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.