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The big February employment miss

The Bureau of Labor Statistics (BLS) released its most recent employment report on March 8: In February of this year, the nonfarm economy, on net, created only 25,000 private-sector jobs and 20,000 jobs overall. One part of this report is the establishment survey, which contributed some of the weakest numbers since the past recession.

Forecasters failed to predict these anemic jobs numbers. In fact, before the report’s release, consensus market expectations foresaw 180,000 jobs being created in February. Thus, consensus expectations “missed” the February payroll number by 160,000 persons on the downside. The household survey component of the report was stronger, with the unemployment rate declining by 0.2%. According to the BLS, this decline in unemployment “reflects, in part, the return of federal workers who were furloughed in January due to the partial government shutdown.”

Another well-known statistic used to predict the BLS jobs number is the ADP national employment report. It’s produced by the ADP Research Institute, which is part of ADP. (ADP is an American company that provides human resource and payroll management software and measures nonfarm private sector employment using anonymous data from its clients.) The ADP report, which is released monthly a few days before the BLS employment numbers come out, predicted an increase in private nonfarm payroll of 183,000 in February. Thus, the ADP report differed from the BLS number by 158,000. This difference was one of the largest in 14 years, relative to forecast errors in months outside of U.S. recessions.

FRED provides an integrated picture of all this in the graph above, which combines three monthly series: BLS total nonfarm payroll, BLS government employment, and ADP total private nonfarm payroll. All three are presented as their month-over-month changes in thousands of persons. We combine the three series by first taking the difference of the first two. This gives the change in private nonfarm payroll according to the BLS. Second, we construct a “forecast error” by subtracting the ADP number (which we use as our forecast) from the actual BLS private payroll number.

Excluding five months during the recession (the shaded section in the graph), the downside difference between the BLS and ADP numbers for February employment was larger than the downside difference of any other month since 2003.

How this graph was created: Search for “total nonfarm payrolls,” select the series “All Employees: Total Nonfarm Payrolls,” and click “Add to Graph.” From the “Edit Graph” panel, use the “Edit Line 1” feature to “Customize data”: In this field, enter “government employees.” From the list of options, choose “All Employees: Government” and click “Add.” Again under “Customize data,” search for and add “Total Nonfarm Private Payroll Employment.” The first two series are from the BLS and the third is from ADP. For each of these three series, adjust the units to “Change, Thousands.” Next, compute the series shown here by subtracting the other two. FRED denotes the variables for each series in order: So, enter “a-b-c” into the “Formula” box and click “Apply.”

Suggested by Bill Dupor.

View on FRED, series used in this post: CES9091000001, NPPTTL, PAYEMS

How do government shutdowns affect employment?

A look at public and private payrolls

The Bureau of Labor Statistics (BLS) measures payroll employment with their establishment survey—or, more formally, their Current Employment Statistics survey. The establishment survey records the number of jobs on company payrolls on the 12th of each month. The recent partial U.S. government shutdown presents a good opportunity to look at how shifts in government payrolls might affect payrolls overall.

Because the establishment survey does not consider furloughed workers to be off the payroll, any decline in payroll employment as a result of a government shutdown will arise from either quits or formal layoffs in the government sector. Of course, contagion can also occur in the private sector: For example, demand for hotel rooms in Washington, D.C., may be lower until the government reopens or airlines may see a drop in demand if airport security lines become too long. The BLS estimates that the recent partial government shutdown (the longest in history, from December 22 to January 25, 2019) has not substantially affected federal employment. For now, let’s look at three previous government shutdowns highlighted in the FRED graph.

The dark blue line in the graph shows the monthly change in overall nonfarm payroll employment. Keep in mind that changes in overall payroll employment may not necessarily be caused by government shutdowns.
The light blue line shows the monthly change in federal government payroll employment, and the red vertical lines show three long-term government shutdowns: October 1978, November-December 1995, and October 2013.

During these shutdowns, federal employment as measured by the establishment survey didn’t change substantially: +7,000, -21,000, and -14,000, respectively. But shutdowns may have an effect on overall payrolls. The list below shows the changes in payroll employment in the month of, the month after, and the second month after these three previous government shutdowns:

  • October 1978 shutdown: October +335,000, November +435,000, December +280,000
  • November-December 1995 shutdown: November +144,000, December +146,000, January -5,000
  • October 2013 shutdown: October +225,000, November +267,000, December +67,000

As we can see from the data, in previous shutdowns, private payroll employment growth has tended to decrease in the second month after the shutdown, before rebounding a few months later.

During the most recent shutdown, the BLS remained funded and continued to conduct their surveys. In fact, they recently released their January numbers: +1,000 jobs on government payrolls and +304,000 on payrolls overall. If the current experience plays out in the same way as it did in the past, we can expect payroll growth to decline temporarily in March 2019.

How this graph was created: Search for “All Employees Total Nonfarm Payrolls” in FRED and select the series. Next, select the “Add Line” option in the “Edit Graph” menu. Search for “All Employees: Government: Federal” and click “Add Data Series.” From the “Format” tab, move the federal government employees series to the right axis. Using the “Edit lines” menu, click on each line and set the units to “Monthly change, thousands of persons.” Last, go back to the “Add Line” menu and select the link to create a user-defined line. Enter the dates of the three shutdowns in both the start and end categories. For example, for the October 2013 shutdown enter “2013-10-01” in both the start and end boxes. Then set the value start/end to be the max and min values of the left axis. Repeat this for all three shutdowns. Change the colors of the added lines to red on the “Format” menu.

Suggested by Michael Owyang and Hannah Shell.

View on FRED, series used in this post: CES9091000001, PAYEMS

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