Understanding the gap between payroll, household employment

While off-farm wage jobs continue to show steady growth, household employment numbers have been on a downward trajectory. Yahoo Finance anchor Seana Smith examines the latest employment data — ahead of tomorrow’s JOLTS (Job Openings and Labor Turnover Survey) print and Friday’s jobs report — exploring what they reveal about the current state of the labor market.

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This post was written by Angel Smith

Video Transcript

While non-farm payrolls are rising steadily, household employment is falling.

Shana Smith of Yahoo Finance joins me now with a closer look.

Shana Hey there, Josh.

Okay, so this is a trend that has certainly caught Wall Street’s attention over the past few months.

So we wanted to break down exactly what we’ve seen from the latest report and then finally, what?

This could potentially tell us about what is happening in the US economy at the moment.

So what do you have on display right here?

That’s the trend we’ve seen in nonfarm payrolls.

Now they have continued to rise, remain stable, especially when you compare it to the historical average.

The numbers we’ve gotten recently really show a job market here that remains strong.

I want to compare this to the trend we saw in the household employment survey.

So as you can see, this is the light blue line here, and this has been declining as non-farm payrolls, which is a survey here of businesses, has remained stable.

Now it’s important to note that the household employment survey here is that brightest blue line here on the screen.

It’s a smaller group in terms of what the survey is, uh, who’s asking the survey.

And they are also observing how there are so many questions.

For what?

Uh, the indicator is more important or maybe more reliable here in the long run.

But I want to talk about the gap that we’re seeing here, because the gap in the most recent report widened a little bit.

And that’s really the reaction on the street to that latest press.

And what this, uh, what this chart really breaks down is probably the theory behind why this is happening.

And there was a new note from alpine research that really showed or alpine macro.

Sorry, really Noting the fact that maybe some of this has to do with immigration, we’ve certainly seen an increase in immigration over the last few years.

And when you take a look, there are an estimated 4 million undocumented immigrants currently living in the US.

The story continues

So the Alpine macro was pointing to the fact that if only less than half of undocumented immigrants are actually working, that would actually drop or account for about half of the discrepancy that we’re seeing between these two charts.

And I want to emphasize this because this is also something that big banks like Morgan Stanley.

When I take a look at Goldman, when I take a look at JP.

Morgan mentioned exactly this gap that we’ve seen in the household payroll survey and not one-sided and exactly what that signals and why that’s happening.

This key question.

Why?

So some of that is now being pointed out that maybe immigration has an external effect or influence on that.

And maybe that’s why we’re seeing these two readings remain so far apart at this point in the economic cycle.

All right, a big number coming Friday morning.

Thanks, Shanna.