The U.S. economy added a whopping 288,000 jobs in April, the biggest monthly gain in more than two years. And the unemployment rate fell to a 5 1/2 year low of 6.3 per cent from 6.7 per cent.
But the drop in the unemployment rate had nothing to do with more people getting jobs.
Wait, what? Didn’t the rate fall because of all the new jobs?
Actually, no. The jobs report is based on two separate surveys, and they sometimes produce very different results. The job count comes from a survey of businesses. The unemployment rate is compiled from a survey of households.
The business survey asks mostly large companies, nonprofits and government agencies how many people they employed during the month. For April, the payroll survey showed that companies and government agencies added 288,000 jobs.
In the household survey, government workers ask whether the adults in a household have a job. Those who don’t are asked whether they’re looking for one. If they are, they’re considered unemployed. If they aren’t looking for a job, they’re not considered part of the workforce and are not counted as unemployed. The household survey produces each month’s unemployment rate.
In April, the household survey showed that far fewer people began job hunts than is typically so. Most people who start looking for work don’t immediately find jobs. So an increase in job-seekers usually boosts the number of unemployed.
But because fewer people started looking for work in April, the number of unemployed fell by 733,000. That lowered the unemployment rate.
The household survey also found a slight drop in the number of people who said they had jobs.
Both declines reduced the proportion of adults either working or looking for work to a three-decade low last reached in December.
The decline was a disappointment. In the first three months of the year, better hiring had drawn about 1.5 million more people into the workforce. That trend was partly reversed in April.
Unlike the payroll survey, the household survey captures farm workers, the self-employed and people who work for new companies. It also does a better job of capturing hiring by small businesses.
But the household survey is more volatile from month to month. The Labor Department surveys just 60,000 households, a small fraction of the more than 100 million U.S. households.
By contrast, the payroll survey seeks information from 145,000 companies and government agencies. They employ roughly one-third of non-farm employees. The employers send forms to the Labor Department or fill out online surveys, noting how many people they employ. They also provide pay, hours worked and other details.
Most Americans focus more on the unemployment rate, which comes from the household survey. But economists generally prefer the jobs figure from the payroll survey.