What to Look For In Friday's Unemployment Report

On Friday at 8:30 a.m. the Bureau of Labor Statistics will publish the first government snapshot of August's economic activity-the monthly employment report. The details inside BLS's 25 tables are especially important this week, because the Fed is considering ending its zero interest policy if labor markets improve. Chair Yellen continues to give slack labor markets as a reason to delay raising interest rates.

Headline news will be the unemployment rate, forecast to decline to 6.1 percent from 6.2 percent, and the number of nonfarm payroll jobs created, forecast at 220,000, up from 209,000 in July. Here are seven data points to watch when you go to www.bls.gov and click on "Employment Situation" this Friday.

Labor Force Participation Rate. If the unemployment rate unexpectedly declines another two-tenths of a percentage point, as it did in June, a close examination of the change in the labor force participation rate - the fraction of adult Americans either employed or looking for work - is essential. Both data points are taken from a survey of households. If more people leave the labor force then a decline in the unemployment rate is not necessarily good news, because people have chosen to give up their job search before they find employment. That means fewer workers and a weaker economy.

Last month the labor force participation rate rose by a tenth of a percentage point to 62.9 percent, the same level as in 1978. The rate has not yet recovered from the 2007-2009 recession. Between 2003 and 2008 the labor force participation rate remained around 66 percent. It tanked in 2009 to 65.5, and is still trending downward.

As the labor market recovers and more people look for work, the unemployment rate is likely to rise. It takes time to find a job, and job seekers are registered as unemployed while they search. So it would not be bad news if the unemployment rate on Friday were to rise due to an increase in the labor force participation rate. This would show that people were confident enough to resume their job search.

Broader Measures of Unemployment. BLS produces six measures of the unemployment rate, known as U-1 to U-6. BLS, and therefore the media, generally focus on the middle rate, U-3, currently at 6.2 percent. U-3 is defined as unemployed workers, and does not include discouraged workers and those who are marginally attached to the labor force-as well as those working part-time when they prefer full-time work. These people are included in U-6. Last month U-6 was 12.2 percent, almost twice the level of the more widely-reported U-3 unemployment rate. The broader U-6 measure mirrors the declining labor force participation rate, because many people who say they are not looking for work would likely take jobs if they were available. Over the past decade, the difference between U-3 and U-6 has increased from four to seven percentage points.

Revisions to Prior Jobs Numbers. The net job creation number, taken from a survey of firms, can propel the stock market either up or down. But, unlike the unemployment rate, BLS's estimate of the change in nonfarm payroll employment is revised in two successive months, and then adjusted again next year. Even if BLS announces that 220,000 new jobs have been created, these numbers will be revised.

Consider revisions to past months. In June, BLS announced that 217,000 new nonfarm payroll jobs were created in May. By August, this figure had been revised up to 229,000, an increase of 22,000. In August, BLS also revised up job creation numbers for June by 10,000. The job creation numbers might move markets but they are subject to revision.

The last paragraph in BLS's description of the data gives the revised jobs numbers from the two prior months. On Friday, newly revised data will be given for June and July.

Aggregate hours worked in the economy. One of the most interesting tables in the employment report, B-9, comes at the very end. Look at it first, because it shows indexes of aggregate weekly hours in the economy. If the index rises, as it did last month, it means that Americans worked more hours. If it declines, people worked fewer hours.

It is possible that the new Affordable Care Act regulations are encouraging employers to add part-time rather than full-time employees. (If employees work fewer than 30 hours per week, employers do not have to pay penalties for not offering health insurance.)

Teen Unemployment Rate. Teen unemployment rates have always been higher than adult unemployment rates. In July the teen unemployment rate declined from 21 percent to 20.2 percent. Will it decline further in August?

The teen unemployment rate peaked at 26 percent in 2010 before declining to its current level. African American teen unemployment is substantially higher, at35 percent. High teen unemployment rates are signs of social problems ahead. When low-skill workers find it difficult to enter the labor market, their problems finding jobs can persist for years into the future. About half of minimum wage workers are under 25.

Long Term Unemployed. Will long-term unemployment rise or fall in August? Those out of work for 27 weeks or longer, defined as the long term unemployed, represented 32.9 percent of the unemployed in July, up from 32.8 percent in June but down from 37.2 percent of the unemployed a year earlier.

The larger the fraction of long-term unemployed, the more difficult it is to reduce unemployment. People out of work for longer periods of time tend to lose hard skills, such as familiarity with the latest technology, and soft skills, such as getting up on time and networking. Training programs for long-term unemployed are more challenging, both for teachers and learners. The best cure for long-term unemployment is increased economic growth, which pulls workers into the labor market.

The Fed's actions in September will be influenced by the numbers that come out on Friday. Look behind the headlines, and judge for yourselves.