about 40 percent of the total workforce. It is this survey that most fore-
casters use to judge the future course of the economy. Of the greatest im-
portance to traders is the change in the nonfarm payroll(the number of
farm workers is excluded since it is very volatile and not associated with
cyclical economic trends).
Theunemployment rateis determined from an entirely different sur-
vey than the payroll survey. It is the unemployment rate, however, that
often gets the top billing in the evening news. The unemployment rate is
calculated from a “household survey” in which data from about 60,000
households are accumulated. It asks, among other questions, whether
anyone in the household has “actively” sought work over the past four
weeks. Those who answer yes are classified as unemployed. The result-
ing number of unemployed people is divided by the number of people
in the total labor force, which yields the unemployment rate. The labor
force in the United States, defined as those employed plus those unem-
ployed, comprises about two-thirds of the adult population. This ratio
had risen steadily in the 1980s and 1990s as more women have success-
fully sought work, but it has stabilized recently.
The BLS statistics can be very tricky to interpret. Because the pay-
roll and household data are based on totally different surveys, it is not
unusual for payroll employment to go up at the same time that the un-
employment rate rises, and vice versa. One reason is because the payroll
survey counts jobs, while the household survey counts people. So work-
ers with two jobs are counted only once in the household survey but
twice in the payroll survey. Furthermore, self-employed individuals are
not counted in the payroll survey but are counted in the household sur-
vey. Finally, increases in the number seeking work in the early stage of
an economic recovery may increase the unemployment rate due to the
influx of job seekers into an improved labor market.
For these reasons, economists and forecasters have downplayed the
importance of the unemployment rate in forecasting the business cycle.
But this does not diminish the political impact of this number. The un-
employment rate is an easily understood figure that represents the frac-
tion of the workforce looking for but not finding work. Much of the
public looks more to this statistic than any other to judge the health of
the economy. As a result, pressure to shift policy mounts on politicians
and policymakers whenever the unemployment rate rises.
Since 2005, the Automatic Data Processing (ADP) corporation has
released its own payroll data, called The ADP National Employment Re-
port, two days before the BLS labor report. The ADP report is a measure
of nonfarm private employment, based on approximately three-fourths
242 PART 3 How the Economic Environment Impacts Stocks