A tale of two surveys

Summary

The establishment and household measures of employment have painted different pictures of the labor market's resilience in recent months. According to the payroll survey, U.S. employment continues to grow at a robust pace year-over-year. Meanwhile, annual employment growth as measured by the household survey has nearly stalled, with the 0.4% rise through March the smallest increase outside the pandemic since October 2013. In this report, we discuss key differences in the objectives and methodologies of the surveys, potential explanations for the current divergence in trends and what it means for expected strength in hiring ahead.

The household survey and the establishment survey of payrolls are designed to provide separate views of the labor market. The household survey is a demographic survey offering insight into the labor force status of segments of the population. The payroll survey measures employment and earnings from an industry perspective.

The surveys define employment differently. The household survey measures the count of employed persons while the establishment survey measures jobs in the U.S. economy. The scope of payrolls is less comprehensive and excludes agricultural workers, workers in private households (e.g., housekeepers), the unincorporated self-employed and workers on unpaid leave (e.g., on strike). However, even after reconciling the surveys' scopes, the present gap in employment growth remains large.

The birth-death factor is still providing a historically large lift to monthly payroll gains, but this is not a major contributor. Over the past year, the birth-death model has boosted payrolls employment by 26K more per month than its pre-pandemic lift, but given the household survey is a survey of persons and not businesses, it neither requires nor receives such an adjustment.

The household survey could be underestimating the population, and therefore employment, if the recent surge in immigration is not yet reflected in the survey's population controls. The Census net immigration estimates rely on lagged data and currently sit below other approximations. Meantime, the establishment survey's count of jobs does not rely on population estimates and is likely to be faster to include an influx of foreign workers.

The household measure of employment is more volatile and difficult to compare across periods given its smaller sample size and revision methodology. Household employment tends to oscillate around the more stable payroll trend, and a steeper plunge in response rates post-pandemic may be exacerbating the volatility.

We do not believe the downturn in household employment is a harbinger of an imminent collapse in nonfarm payrolls. The household survey has a poor track record of foreshadowing downturns in payrolls. The employment trend divergence is also somewhat cyclical, so it is not unusual for the gap to be increasing over an expansion. Both surveys' primary outputs—payroll growth and the unemployment rate—point to a still-strong jobs market. We will thus continue to keep our eyes on payrolls to gauge the strength of hiring and not fret over the near-stalling in household employment growth over the past year.

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