Employment Reports: Nonfarm Payrolls and Household Survey
Two Surveys, Different Pictures
The Bureau of Labor Statistics (BLS) releases the Employment Situation report on the first Friday of each month at 8:30 AM Eastern. This single report contains data from two separate surveys that sometimes tell conflicting stories.
The establishment survey (nonfarm payrolls): Surveys approximately 670,000 worksites covering about one-third of all nonfarm payroll employees. Reports total jobs, hours worked, and earnings.
The household survey: Surveys approximately 60,000 households to classify individuals as employed, unemployed, or not in the labor force. Produces the unemployment rate.
The point is: When headlines report "The economy added 200,000 jobs," that comes from the establishment survey. When they report "The unemployment rate fell to 3.7%," that comes from the household survey.
Nonfarm Payrolls: What It Captures
The establishment survey counts payroll jobs—if you have two jobs, you are counted twice. It excludes:
- Agricultural workers
- Self-employed individuals
- Unpaid family workers
- Private household employees
| Sector | Approximate Share of Payrolls |
|---|---|
| Education and health services | ~16% |
| Professional and business services | ~15% |
| Retail trade | ~10% |
| Leisure and hospitality | ~11% |
| Government | ~15% |
| Manufacturing | ~8% |
| Other | ~25% |
Worked example: October 2024 reported +12,000 nonfarm payrolls, well below the +100,000 consensus. However, the BLS noted that hurricanes and a major strike reduced the count by approximately 100,000. The underlying trend was likely close to expectations.
Household Survey: Counting People
The household survey counts employed persons—if you have two jobs, you are counted once. It includes:
- Self-employed individuals
- Agricultural workers
- Unpaid family workers working 15+ hours
Key metrics from the household survey:
- Unemployment rate
- Labor force participation rate
- Employment-to-population ratio
- Part-time vs. full-time employment breakdown
The calculation for unemployment rate: Unemployment Rate = (Unemployed / Labor Force) x 100
Where Labor Force = Employed + Unemployed (actively seeking work)
Why the Surveys Diverge
In 2022-2023, the household survey showed notably weaker job growth than the establishment survey. This divergence triggered debate about which survey was more accurate.
Reasons for divergence:
- Multiple jobholders: Establishment survey counts each job; household survey counts each person
- Self-employment trends: Only captured in household survey
- Immigration and undercounting: Establishment survey may miss some immigrant employment
- Birth-death model adjustments: Establishment survey estimates for new/closed businesses
- Sample size differences: Establishment survey is 10x larger
The durable lesson: Neither survey is wrong. They measure different things. Large, sustained divergences often signal structural shifts in how Americans work.
Revisions and Benchmark Adjustments
The establishment survey undergoes significant revisions:
| Revision Type | Timing | Typical Magnitude |
|---|---|---|
| Monthly revisions | Each release updates prior two months | +/- 30,000 jobs average |
| Annual benchmark | February (for prior March) | Can exceed +/- 500,000 total |
Worked example: The March 2024 benchmark revision revised total 2023 job gains down by 818,000—a significant recasting of the labor market narrative.
What Moves Markets
Components that matter most:
- Headline payrolls vs. consensus: Surprise direction and magnitude
- Average hourly earnings: Year-over-year growth above 4% signals wage inflation
- Unemployment rate changes: 0.3%+ moves in either direction are significant
- Revisions to prior months: Often as important as the headline number
- Labor force participation: Rising participation is healthy; falling participation (not driven by demographics) signals discouraged workers
Common Pitfalls
- Focusing only on the headline number: Revisions and composition matter more than any single month
- Ignoring seasonal adjustment issues: January and summer months have large seasonal swings
- Treating small unemployment rate changes as meaningful: 0.1% moves are within sampling error
- Missing the hours worked data: Payrolls can rise while total hours worked falls (shorter workweeks signal slowing)
The Birth-Death Model Controversy
The BLS uses a "birth-death model" to estimate net job creation from new businesses minus closed businesses. This model:
- Adds or subtracts jobs based on historical patterns
- Can be slow to capture turning points
- Is controversial during economic transitions
The practical point: During recessions, the birth-death adjustment typically adds jobs that may not exist. During expansions, it may undercount new business formation.
Checklist for Employment Friday
Before 8:30 AM:
- Know consensus expectations for payrolls, unemployment rate, and wages
- Check for known distortions (strikes, hurricanes, government shutdowns)
- Note recent Fed commentary on labor market conditions
After the release:
- Compare payrolls to consensus and check revision direction
- Calculate three-month moving average for trend signal
- Check wage growth year-over-year and month-over-month
- Examine household survey for participation and employment-to-population ratio
Next Step
For the next three jobs reports, track both the establishment and household survey employment changes. Note whether they move in the same direction. When they diverge significantly, investigate which components (self-employment, multiple jobholders) are driving the difference.