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Allan S. Glass' Blog

By Allan S. Glass | Broker in Los Angeles, CA

Explaining Unemployment Reports

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Most astute economists and real estate professionals will point to employment figures as an indication of what direction the economy is heading.  More direct to the real estate industry, jobs drive demand for real estate, both commercial and residential.

When businesses hire, more production occurs.  This, in turn, drives demand for warehouses, office space, manufacturing plants, and retail locations as business expands and companies seek to accommodate their growth.

On the housing side of real estate, people follow jobs.  Conversely, areas which offer few opportunities to their unemployed residents find their populations contracting.  While high unemployment leads to fewer home owners able to meet their mortgage obligations, it also leads to fewer tenants able to, or sometimes even available to, pay the rent.

An oversimplified explanation on the effects of employment on real estate, it serves as a basic understanding of why these figures are so important to those seeking to find a direction in the real estate markets.

This past Friday the two most cited reports were released indicating numbers which may have been confusing the some.  First, the Current Population Survey (CPS), the monthly survey of households conducted by the Bureau of Census for the Bureau of Labor Statistics (BLS), indicated that the national unemployment rate fell .4 percent in January to 9.0 percent.  Next, the Current Employment Statistics (CES) Survey, a monthly survey of non-farm wage and salary jobs, was released by the BLS was released indicating a paltry 36,000 jobs created during that same period.

The question became how could unemployment drop so dramatically with such a low number of jobs created over the same period?  The answer lies in the understanding of how the two reports are conducted and what they actually measure.

CES - Current Employment Statistics program

Taken directly from the BLE website:

“also known as the payroll survey or the establishment survey, is a monthly survey of approximately 140,000 businesses and government agencies representing approximately 440,000 work-sites throughout the United States.  From the sample, CES produces and publishes employment, hours, and earnings estimates for the nation, states, and metropolitan areas at detailed industry levels.

The CES employment series are estimates of non-farm wage and salary jobs, not an estimate of employed persons; an individual with two jobs is counted twice by the payroll survey.  The CES employment series excludes employees in agriculture and private households and the self-employed.”

CPS - Current Population Survey

This again taken directly from the BLE website:

” frequently referred to as the household survey, is a monthly survey of about 60,000 households. The CPS collects information about the civilian non-institutional population. All persons in the civilian non-institutional population age 15 and over are classified as employed, unemployed, or not in the labor force, although labor force estimates are published only for those 16 and older.

The CPS estimates are available by various demographic characteristics, including sex, race, Hispanic or Latino ethnicity, age, and educational attainment. The CPS estimates are also available by industry and by occupation. Numerous cross-tabulations of labor force variables by demographic characteristics are available. The CPS also uses supplemental surveys to collect data on various subjects of interest, such as the working poor, volunteering, and worker displacement.

The CPS estimate of employment is for the total number of employed persons. Included are categories of workers that are not covered by the Current Employment Statistics (CES) survey: self-employed persons, private household workers, agriculture workers, unpaid family workers, and workers on leave without pay during the reference period. Multiple jobholders are counted once in the estimate of total employed.”

Understanding the Differences

Most importantly the CES measures jobs available to workforce while the CPS gives a more broad understanding of employment and focuses on who and how many American are actually employed.

The Payroll Survey (CES) includes a sampling from approximately 140,000 businesses and government agencies covering over 440,000 establishments and breaks down number of jobs, hours worked, and earnings figures by industry and with geographic detail.  These figures exclude what can be considered a shadow workforce consisting of the self employed, unpaid family workers, and private household workers (your maid or gardener).  According to the BLS employment summary of recent trends it takes a +/- 96,000 month over month change in data to register any statistically significant movement.

The Household Survey (CPS) includes a survey of approximately 60,000 households conducted by the Census Bureau reporting such figures as the size of the labor force, how many people are out of work (unemployed) broken down both geographically and demographically across the nation.  Persons holding multiple jobs are only counted once, and the survey counts the shadow workforce I mention above.  The CPS requires a +/- 436,000 month over month change in employment to register any statistically significant movement.

In January 2011 the CES showed a gain of 36,000 non-farm jobs, while the CPS showed an increase of 117,000 employed people.  Understanding the CPS figures more clearly requires a bit deeper understanding of how the unemployment rate (9.0 percent) is computed.

The unemployment rate is a ratio: the number of unemployed people (numerator) divided by the total civilian workforce (denominator).  Therefore the actual rate is affected by two different factors, both the number of people with jobs and the number of people available for work.  In January the CPS indicated 504,000 fewer people were available for jobs.  Summarizing, the CPS showed a surge forward in the number of employed people (number in the numerator) and a sharp decline in the number of people available for work (number in the denominator); thus the the unemployment rate decreased sharply.

Digging Deeper - Regional and Local Data

The real estate market is difficult to gauge on a national level. It almost seems absurd to explain what’s happening in California by discussing the market conditions in Florida. In some markets, like Los Angeles, it can be even more hyper-local.  For example, the conditions and economic drivers affecting Palmdale/Landcaster can be dramatically different than the factors driving Beverly Hills, or South Central Los Angeles.  Because of this, in addition to understanding the national employment situation, real estate professionals should also dig deeper into employment data to understand what is happening in their own backyard.

The BLE has you covered.  With the release of each national report come figures broken down into various geographic parameters.  In addition to understanding how your region compares, it can be equally telling to find which industries are creating jobs and which are not.  This can be very useful if your market is particularly heavy in one industry or light in the next.

Success in real estate is driven by knowledge.  Although we may all become lucky at some point, sustained success is found by those who seek and understand the factors that affect each real estate market.  Knowing both how to find and how to interpret employment data is an essential part of any real estate education.

I wish you continued success in 2011.  Here’s to Jobs!

© 2010 Allan S. Glass - ASG Real Estate Inc. ®

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