The U.S. Bureau of Labor Statistics (BLS) releases the Employment Situation Summary, better known as the employment, or jobs report, at 8:30 a.m. ET on the first Friday of every month. The report is based on surveys of households and employers. It estimates the number of people on payrolls in the U.S. economy, the average number of hours they worked weekly, and their average hourly earnings, along with several versions of the unemployment rate.

The jobs report is among the most important and comprehensive economic releases, and the earliest to provide data for the immediately prior month. Its numbers are hotly anticipated and closely parsed as a result. Many investment firms issue estimates ahead of the report for the monthly change in nonfarm payrolls and the U-3 unemployment rate, as well as hours worked and hourly earnings. The report often moves financial markets, and is used among other data by the Federal Reserve to assess the state of the economy in setting monetary policy.

The Establishment Survey

The establishment survey, formally called the Current Employment Statistics Survey, gathers data from approximately 145,000 nonfarm businesses and government agencies for some 697,000 work sites and about one-third of all payroll workers. The survey is based on the weekly pay period that includes the 12th day of the month.

Anyone on the payroll of a surveyed business during that reference week, including part-time workers and those on paid leave, is included in the count used to produce an estimate of total U.S. nonfarm payrolls. Farm workers are not included because of agriculture’s seasonal nature; the sector’s reliance on self-employment, unpaid family work, and undocumented workers; and its partial exemption from unemployment insurance requirements, since those records are used to compile the survey sample. The payrolls data also does not include self-employed workers.

The establishment survey provides estimates for nonfarm payrolls, average weekly hours worked and average hourly and weekly earnings nationwide as well as by state and metropolitan area, and by industry. The report also tallies the hours worked and earnings of production and nonsupervisory employees.

Survey results are adjusted based on the “birth/death model”—for businesses rather than people, BLS uses it to estimate monthly payrolls changes resulting from the openings and closings of businesses beyond its survey sample.

The numbers are seasonally adjusted to filter out fluctuations like the annual surge in retail sector hiring ahead of the holiday shopping season and the wintertime slowdowns in construction, though the BLS also provides the data without the seasonally adjustments.

Nonfarm payroll totals are adjusted in each of the two monthly jobs reports following the initial release to incorporate additional survey responses and the latest seasonal adjustment factors. They’re also subject to annual revisions benchmarking them to updated counts from unemployment insurance tax records.

The Household Survey

The household survey is based on monthly interviews of 60,000 households conducted for the BLS by the U.S. Census Bureau. Survey participants are asked about their employment status during the week including the 12th day of the month.

The most prominent product of the household survey is the official, or U-3, unemployment rate, calculated as a percentage of the unemployed actively seeking work relative to the labor force, or the sum of the employed and the unemployed. To be officially counted as unemployed, the survey respondent has to have been available for work in the reference week and made specific efforts to find work during the four prior weeks, unless awaiting an expected recall from a layoff.

The report provides alternative measures of unemployment and underemployment including discouraged workers who would like a job but have stopped looking for one and those who would like a full-time job but are working part-time, as well as rates for job losses during the month and those unemployed 15 weeks or longer.

The proportion of the labor force relative to civilian noninstitutional population is known as the labor force participation rate, also specified in the household survey data.

While the household survey doesn’t include children under the age of 16, it covers several categories of workers not counted by the establishment payrolls survey, including the self-employed, farm workers, household employees and unpaid family workers. As such, it is a more comprehensive measure. The smaller sampling size of approximately 60,000 as opposed to the establishment survey’s coverage of one-third of the labor force means the household survey’s measure of employment is less precise. The threshold for a statistically significant employment change in the household survey is 500,000, versus 100,000 in the establishment survey.

Household survey data on employment status is subtotaled by race, gender, age, and education, as well as veteran status and period of service; disability status; worker classification, industry, and occupation; and whether the worker is a U.S. native or foreign-born. The unemployed are also counted by reason for and the duration of unemployment.

Employment Report Implications

A single month of job gains or losses is hardly a trend, and the monthly change in nonfarm payroll numbers is subject to wide fluctuations as well as sizeable revisions. Still, it can be an invaluable gauge of economic trends in context with the reports from prior months and other economic data.

Employment is so integral to the U.S. economy that there is no single better proxy for its state, and the monthly jobs report is the most comprehensive employment gauge as well as one of the timeliest monthly economic indicators.

The unemployment rate and the change in nonfarm payrolls garner all the headlines, and are likely the economic indicators cited most frequently by the mainstream media. But the data on earnings serve as an early and important indicator of employment costs, which can contribute to inflation. And the hours worked as well as the changes in the number of part-time and temporary workers provide leading indicators of labor demand.

The socioeconomic subcategories in the household survey help policymakers assess whether some groups are being left behind or making up ground.

The Bottom Line

Though the monthly jobs numbers can be volatile and subject to subsequent revisions, they are a crucial economic indicator. Understanding what the Employment Situation Summary measures, and why, is a must for investors and policymakers seeking to assess the state of the U.S. economy.