The U.S. economy added only 96,000 jobs in August, below July's gain. Yet the unemployment rate fell to 8.1 percent from 8.3 percent, the steepest drop since January.
Why did the rate fall so much when the economy gained only a small number of jobs?
Because the government does one survey to learn how many jobs were created and another survey to determine the unemployment rate. Those surveys can produce results that sometimes seem to conflict.
One is called the payroll survey. It asks mostly large companies and government agencies how many people they employed during the month. This survey produces the number of jobs gained or lost. In August, the payroll survey showed that companies added 103,000 jobs, and federal, state and local governments cut 7,000.
The other is the household survey. Government workers ask whether the adults in a household have a job. Those who don't are asked whether they're looking for one. If they are, they're considered unemployed. If they aren't, they're not considered part of the work force and aren't counted as unemployed. The household survey produces each month's unemployment rate.
In August, the household survey showed that the number of people who said they were unemployed fell by 250,000. But they didn't get jobs — the report showed the number of employed people also dropped in August. Instead, the unemployment rate declined because those 250,000 people gave up on their job searches and weren't counted as part of the overall work force.
Unlike the payroll survey, the household survey captures farm workers, the self-employed and people who work for new companies. It also does a better job of capturing hiring by small businesses.
But the household survey is more volatile from month to month. The Labor Department surveys just 60,000 households, a small fraction of the more than 100 million U.S. households.
By contrast, the payroll survey seeks information from 140,000 companies and government agencies — and they employ roughly one-third of non-farm employees. The employers send forms to the Labor Department noting how many people they employ. They also provide wages, hours and other details.
Most Americans focus more on the unemployment rate, which comes from the household survey. But economists generally prefer the jobs figure from the payroll survey.
Economists note that the surveys tend to even out over time. In the past twelve months, the payroll surveys have shown that employers added roughly 1.8 million jobs. The household surveys have shown that 2.1 million more people said they found work.