Why analysts expect Gallup’s payroll-to-population number to rise



Gallup’s payroll-to-population (or P2P) metric

Gallup’s payroll-to-population (or P2P) metric tracks the percentage of the U.S. adult population aged 18 and older that’s employed full-time by an employer, for at least 30 hours per week. P2P isn’t seasonally adjusted. However, because of seasonal fluctuations, year-over-year comparisons are often helpful in evaluating whether monthly changes are attributable to seasonal hiring patterns or true growth (or deterioration) in the percentage of people working full-time for an employer.

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Gallup tracks daily the employment status of the U.S. population and the workforce using a set of questions designed to measure U.S. employment accurately. Based on an individual’s responses to the question series, Gallup classifies respondents into one of six employment categories: employed full-time for an employer, employed full-time for self, employed part-time but unwilling to work full-time, employed part-time willing to work full-time, unemployed, and out of the workforce.

Gallup’s unique P2P employment measure gives a clear picture of the employment situation for the entire U.S. population without the complexity of the frequently changing size of the workforce.

When the U.S. workforce decreases, unemployment rates can actually improve, as fewer people are part of the workforce. In contrast, P2P declines when fewer people are working full-time and rises when more people find full-time work. Gallup doesn’t count adults who are self-employed, working part-time, unemployed, or out of the workforce as “payroll-employed” in the P2P metric.

The U.S. P2P, as measured by Gallup, was 42.7% in March. This is down slightly from 43.1% in February, but it remains slightly up from 42.0% in January. P2P so far in 2014 remains below the averages for 2013 (43.8%) and 2012 (44.4%). A year-to-year comparison reveals that the P2P rate for March 2014 is down slightly compared to the 43.4% found in the same month last year and the 43.7% in March 2012.

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The brief surge in P2P in February has partially ebbed this past March, as P2P again fell below 43%. The percentage of the U.S. adult population employed full-time for an employer has generally been the lowest in the first quarter of each year, rising in April and peaking in the summer and early fall. So the expectation is that Gallup’s P2P measure will rise in the coming months.

Investor takeaways

Unlike unemployment rates, the P2P percentage provides information about economic energy. For example, increasing retirement rates due to retiring Baby Boomers will result in a lower overall P2P value unless there’s an unusually high influx of immigrants. This means fewer people are sustaining the economy or contributing to the tax base. This decline in employment, which goes undetected in traditional employment measures, could have significant consequences. Alternatively, an increase in P2P rates can lead to sustained economic growth.

The performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF), which track large-cap equities of companies like Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM), serve as a good indicator of the course the U.S. equity market is taking. Equity markets tend to rise when P2P shows a rising trend and economic conditions are improving, and vice versa.


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